[Opinion] FAQs on Revision of Orders Prejudicial to Revenue

With Retrospective effect from 1-11-2020,the following authorities may call for and examine the record of any proceedings under the income tax Act to exercise the revisionary power u/s 263

(1) PCCIT; or
(2) CCIT; or
(3) PCIT; or
(4) CIT

Earlier, up to 31.10.2020 such powers were in the hands of PCIT or CIT.

“Record” shall include all the record related to any proceeding under this Act which are available at the time of examination by PCCIT or CCIT or PCIT or CIT.

Even the materials that were not in existence at the time of the assessment but came into existence afterwards can also be taken into consideration by the authorities for the purpose of invoking jurisdiction.

Any order passed by AO which is erroneous as well as which is prejudicial to the interest of revenue may be revised by the relevant competent authority. There are two conditions which are to be satisfied simultaneously for the application of section 263(1): –

(a) Such order should be erroneous: and
(b) Such order should be prejudicial to the interest of the revenue

The Hon’ble M.P. High Court in the case of H.M. Maharaja Raja Pawar Dewas v. CIT [1983] 15 Taxman 363 held that if the order is erroneous but it not prejudicial to the interest of Revenue, the Commissioner cannot exercise the revisional jurisdiction u/s 263.

Similarity the Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 held that if the order is not erroneous but is prejudicial to the revenue, recourse cannot be had to section 263.

An order passed by AO/TPO shall be termed as erroneous if in the opinion of PCCIT or CCIT or PCIT or CIT , it is prejudicial to the interest of Revenue.

i. The order is passed without making inquiries or verification which was required to be made.
ii. The order is passed allowed any relief without making an inquiry into the claim.
iii. The order has not been made in accordance with any order direction or instruction issued by the Board u/s 119.
iv. The order has not been passed in accordance with any decision prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

The Hon’ble Chennai ITAT in the case of SICAL Logistics Ltd. v. Addl. CIT [2010] 127 ITD 187 held that merely because A.O. did not conduct inquiry into Books of Account in way Commissioner wanted it, it could not be treated as erroneous order.

The Hon’ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. [2010] 189 Taxman 436/[2011] 332 ITR 167 held that If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders u/s. 263, merely because he has different opinion in the matter. It is only in cases of lack of inquiry, that such a course of action would be open.

The Hon’ble Gauhati High Court in the case of CIT v. Jawahar Bhattacharjee, [2012] 24 taxmann.com 215/209 Taxman 174/341 ITR 434 held that Cases of assessment order passed on wrong assumption of facts, on incorrect application of law, without due application of mind or without following principles of natural justice are not beyond scope of s. 263 Thus, not holding such inquiry as is normal and not applying mind to relevant material would certainly be erroneously assessment warranting exercise of revisional jurisdiction.

The Hon’ble Bombay High Court in the case of CIT v. Gabriel India Ltd., [1993] 71 Taxman 585/203 ITR 108 held that ITO conclusion can not be termed as erroneous simply because Commissioner does not agree with his conclusion .A.O. order can not be held to be “erroneous” simply because in his order he did not make an elaborate discussion.