Revision : S. 263 of Income-tax Act, 1961 : A.Ys. 2004-05 and 2005-06 : Assessment order consistent with binding ruling of AAR : Revision of assessment order by Commissioner u/s.263 not permissible.

[Prudential Assurance Co. Ltd. v. DIT (International
Taxation); 232 CTR 12 (Bom.), 191 Taxman 62 (Bom.)]

For the A.Ys. 2004-05 and 2005-06, the assessments were
completed in accordance with the binding rulings of the AAR in the case of the
assessee. Thereafter the Commissioner sought to reopen the assessments by
exercising the revisional powers u/s.263 of the Income-tax Act, 1961.

The assessee challenged the notice issued by the Commissioner
by filing a writ petition. The Bombay High Court allowed the writ petition and
held as under :

“(i) There is no dispute that the transaction in respect of
which the petitioner sought a ruling and in respect of which the AAR had
issued a ruling to the petitioner is of the same nature as that for A.Ys.
2004-05 and 2005-06. Evidently, the CIT has ignored the clear mandate of the
statutory provision that a ruling would apply and would be binding only on the
applicant and the Revenue in relation to the transaction for which it is
sought. The ruling in Fidelity Northstar Fund cannot possibly, as a matter of
the plain intendment and meaning of S. 245S displace the binding character of
the advance ruling rendered between the petitioner and the Revenue.

(ii) That apart, the CIT could not possibly have found
fault with the AO for having followed a binding ruling. Where the AO has
followed a binding principle of law laid down in a precedent which has binding
force and effect, it is not open to the CIT to exercise his revisional
jurisdiction u/s.263.

(iii) For the aforesaid reasons, on both counts the
invocation of the jurisdiction u/s.263 was improper.”