Supreme Court (SC) Ruling – Section 263 of the Income-tax Act, 1961 (the Act) does not require issue of show cause notice unlike Section 147 of the Act.
Commissioner of Income-tax vs. Amitabh Bachchan [Civil Appeal No. 5009 & 5010 of 2016]
Facts of the case:
The assessment for the assessment year 2001-02 was finalized on 30th March 2004. The assessment in question was set aside by the learned Commissioner of Income-tax (CIT) by the order dated 20th March, 2006 on the principal ground that requisite and due enquiries were not made by the Assessing Officer (AO) prior to the finalization of the assessment by order dated 30th March, 2004. Aggrieved by the said order, assessee filed an appeal before the Income-tax Appellant Tribunal (ITAT) and the same was allowed by the ITAT.
The Income-tax department (Revenue) filed an appeal against the order of the ITAT before the Hon'ble High Court (HC) and the same was summarily dismissed by the HC holding that the revision order passed by the CIT was in violation of the principle of natural justice as CIT had gone beyond the scope of show cause notice and also dealt with issues which were not covered in the show cause notice. Aggrieved by the order of HC, revenue filed an appeal before the Hon'ble Supreme Court (SC).
Key Observations and decision of the Hon'ble SC:
Under the Act, different powers have been conferred on different authorities to deal with the orders passed by the lower authorities. Section 147 of the Act confers power on the AO to proceed against income escaping assessment and section 154 of the Act empowers such authority to correct any mistake apparent from record. The power of revision is contained in section 263 of the Act that confers suo-motu power of revision to the CIT.
The different shades of power conferred on different authorities under the Act has to be exercised within the areas specifically delineated by the Act and the exercise of power under one provision cannot be trench upon the powers available under another provision of the Act. In this regard, it must be specifically noticed that against an order of assessment, so far as the Revenue is concerned, the power conferred under the Act is to reopen the concluded assessment under section 147 and/or to revise the assessment order under section 263 of the Act.
The power and jurisdiction of revenue to deal with a concluded assessment must be understood in the context of the provision of the relevant sections of the Act and while doing so it must be borne in mind that the legislature has not vested in the revenue any specific power to question an order of assessment by means of an appeal.
Section 263 of the Act specifies two conditions i.e. order passed by the authority under the Act is erroneous and prejudicial to the interest of the revenue and both the conditions needs to be present conjointly. Once such satisfaction is reached, jurisdiction of power would be available subject to observation of the principle of natural justice which is implicit in the requirement of the section i.e to give reasonable opportunity of being heard to the assessee.
The Hon'ble SC held that unlike the power of reopening an assessment under section 147 of the Act, power of revision under section 263 is not contingent on giving show cause notice to the assessee. The requirements under section 147 and section 263 are different. In fact, section 263 has been understood not to require any specific show cause notice to be served on the assessee. Rather, what is required under the said provision is an opportunity of hearing to the assessee. Failure to give such an opportunity would render the revision order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice.
The Hon'ble SC referred to the decision of Gita Devi Aggarwal vs. CIT (1970) 76 ITR 496 and CIT vs. M/s Electro House (1971) 82 ITR 824. The Hon'ble SC noted that the ITAT in its order had not recorded any finding that in course of the suo-motu revision proceedings, opportunity of hearing was not afforded to the assessee and that the assessee was denied an opportunity to contest the facts on the basis of which the learned CIT had come to his conclusions.
The Hon'ble SC further observed that if the revisional authority had come to its conclusions in the matter on the basis of the record of the assessment proceedings which was open for scrutiny by the assessee and available to his authorized representative at all times, it is difficult to see as to how the requirement of giving a reasonable opportunity of being heard as contemplated by section 263 of the Act had been breached in the present case.
The Hon'ble SC did not accept the order of the ITAT insofar as the revisional order going beyond the show cause notice was concerned. It was also observed by the Hon'ble SC that the High Court had failed to fully deal with the matter in its cryptic order. According to the Hon'ble SC, the ITAT as well as the High Court, ought not to have interfered with the conclusion of CIT. The Hon'ble SC was of the opinion that present is a fit case for exercise of the suo-motu revisional powers of the learned CIT under section 263 of the Act. It therefore, restored the order of the CIT and set aside the order of the ITAT and the High Court.
The Hon'ble SC reaffirmed the position under law that CIT is not required to issue any show cause while exercising its suo-motu revision power. The SC having reiterated the position that so long as the view taken by the AO is the possible view, the same ought not to be interfered with by the CIT under section 263 of the Act merely on the ground that there is another possible view of the matter. The SC on the facts of the case took the view that this is not the situation in the present case.
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