No sec. 263 amendment simply on ground that AO passed a request depending on ITAT administering which was turned around by HC

  • Income Tax
  • Case Law
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Assessee filed a return of income and its case was selected for scrutiny. During assessment proceedings, out of provision made by assessee for depreciation on investment,  Assessment Officer (AO) made additions to provisions relating to investments in India and excluded a sum for investments outside India. However, Commissioner (CIT) invoked revisionary power under Section 263 on the ground that the order passed by AO was perverse and prejudicial to the interest of revenue. 

Assessee preferred an appeal before ITAT. ITAT based the court's decision in previous years that CIT had erred in arguing that the order passed by AO was wrong and detrimental to the interest of revenue. 

Since, the tribunal had already decided this issue in favour of assessee, the same was binding on both parties. Revenue claimed that the only basis of the order adopted by ITAT was the decision adopted by the court in the appeals. It was pointed out that against the decision relied upon by ITAT, revenue had preferred an appeal before the High court.  

The High Court set aside the order passed by the court and the matter was remanded to AO to consider the matter in accordance with the law.  

Consequently, proceeds submitted that in view of the order adopted by High Court, the order adopted by ITAT deserves to be set aside and the matter be forwarded to AO for decision afresh in accordance with the law. 

On appeal, Karnataka High Court held that the Supreme Court in case of CIT v. G.M. Mittal Stainless Steel (P. Ltd.SC held that power under Section 263 must be exercised based on the material, which was available at the time when CIT passed an order.  

Since the order passed by ITAT was operating, the order passed by AO could not have been described as flawed. Furthermore, merely because the order of AO was passed relying on the decision of ITAT which was subsequently reversed by the High court, Section 263 revision could not be justified.