“Section 263(1)(b)”
The decision most relied on for Section 263(1)(b) is Narayan Tatu Rane v. ITO (70 Taxmann.com 227), cited in 220 judgments on BharatTax.
Leading authorities on Section 263(1)(b)
Before revising an assessment order under Section 263, the CIT/PCIT must conduct their own inquiries or verifications to establish that the Assessing Officer's order is erroneous and unsustainable in law, rather than merely directing further inquiry or pointing out the AO's lack of inquiry.
This case clarifies the scope of the Commissioner's revisional powers under Section 263 of the Income-tax Act, holding that an assessment order can only be revised if it is both erroneous and prejudicial to the interests of the revenue, echoing the principles laid down in Malabar Industrial.
The term 'record' under Section 263(1) of the Income Tax Act includes all material available to the Commissioner at the time of his examination, not merely the records that were available to the Assessing Officer when the original assessment order was passed.
For exercising revisional powers under Section 263, the Commissioner must examine the entire record of proceedings, not merely the assessment order, to ascertain whether the Assessing Officer applied their mind or conducted an enquiry on the issues. The 'record' includes all materials available at the time of examination by the Commissioner.
Incentive provisions in the Income-tax Act, particularly those granting deductions for new industrial undertakings, must be construed liberally to achieve their legislative purpose. This principle guides the interpretation of conditions such as what constitutes a 'new undertaking' versus a 'splitting up or reconstruction' of an existing business for claiming deductions.
An assessment order becomes erroneous and prejudicial to the revenue under Section 263 if the Assessing Officer fails to conduct a proper inquiry or investigation, even if the return appears prima facie correct. The Income-tax Officer has a duty to investigate and cannot remain passive.
Interest earned by an assessee on temporary deposits of surplus funds, which are received as advances in a business activity and are inextricably linked to that business, is assessable as 'Profits and Gains from Business or Profession' rather than 'Income from Other Sources'.
Debatable issues cannot be rectified under Section 154 of the Income-tax Act, as rectification is limited to mistakes apparent from the record.
