Section 263 of the Income Tax Act
The decision most relied on for Section 263 is Malabar Industrial Co. Ltd. v. CIT (243 ITR 83), cited in 2,803 of the 2,890 judgments on BharatTax that turn on this section.
Leading authorities on Section 263
For revision under Section 263, the Assessing Officer's order must be both erroneous and prejudicial to the interests of the revenue; if either condition is not met, the revisionary jurisdiction cannot be invoked. An order is not erroneous merely because the Assessing Officer did not record the details of enquiries conducted, provided due enquiries were made.
The interest income earned by a cooperative society from investing its surplus funds in fixed deposits with banks is not "derived from" its eligible business activities and is taxable as "income from other sources" under Section 56, thus not qualifying for deduction under Section 80P.
Under Section 263, an assessment order is not erroneous and prejudicial to the interest of the revenue merely because the Principal Commissioner disagrees with the Assessing Officer's (AO) view, particularly if the AO has adopted one of two permissible views in law, unless that view is completely unsustainable. If due inquiries were made, the AO's order does not become erroneous solely because the fact of inquiries was not recorded.
The Commissioner cannot revise an assessment order under Section 263 merely because they hold a different opinion or believe a deeper inquiry was warranted if the Assessing Officer has applied their mind and conducted some inquiry. Revision under Section 263 is permissible only in cases of a complete lack of inquiry or non-application of mind by the Assessing Officer, not for merely inadequate inquiry.
The Commissioner cannot revise an assessment under Section 263 merely because the assessment order does not explicitly reflect an inquiry, or because the Commissioner holds a different opinion. An inquiry, even if considered inadequate, or an assessment based on a plausible view by the Assessing Officer after due examination, does not automatically make the order erroneous or prejudicial to the interests of the revenue.
Income arising from a cooperative society's surplus funds invested in short-term deposits and securities is not attributable to the society's core activities and, therefore, is not eligible for exemption under Section 80P(2)(a)(i) of the Income-tax Act.
An assessment order is erroneous and prejudicial to the Revenue's interests if the Assessing Officer accepts a sum offered as income by an assessee, even when that sum was not actually earned, thereby allowing revision under Section 263.
An assessee has the option to amortize certain revenue expenses over multiple years for tax purposes, and tax authorities cannot take a contrary view. The case also clarifies the enduring benefit test for distinguishing capital and revenue expenditure.
An assessment order is erroneous and prejudicial to the interest of revenue if the Assessing Officer fails to make proper inquiries before accepting the assessee's statements or claims. The Commissioner can revise such an order under Section 263 without conducting further inquiries himself.
When there is a conflict between the decisions of non-jurisdictional High Courts, the view that favors the assessee should be preferred.
Judgments on Section 263
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