By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi
Chartered Accountants
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Section 263 is invoked when order is erroneous and prejudicial to interest of Revenue. It’s well-settled provision of law that where there are two views possible, the view adopted by AO cannot be held to be erroneous. The Commissioner cannot invoke provision of section 263 merely because AO kept in abeyance penalty proceedings till the dispute of appeal.
Facts:
Assessment was completed u/s.143(3) and shortterm capital gain of Rs.13,99,528 (undisclosed income) was added to the returned income of assessee for non-production of evidence. Assessee filed appeal to the CIT(A) and ITAT. Both authorities confirmed the addition. The assessee filed appeal before the High Court. Penalty proceeding were initiated u/s.271(1)(c) in the order itself; but order imposing penalty was not passed by the AO as the assessee preferred appeal before the High Court. The AO kept penalty proceeding in abeyance till the matter was decided by the High Court. However, the CIT, set aside the order of the AO u/s.263 on the ground of it being erroneous and prejudicial to the interest of the Revenue.
Both the members (i.e., judicial members and accountant members) upheld jurisdictional powers of the CIT u/s.263 but, they differed on merits of the case. Hence, a reference was made to the Third Member to determine whether the AO was justified in relying on section 275(1A) for keeping in abeyance the penalty proceedings.
Held:
The order is prejudicial to interest of the Revenue only when lawful revenue due to the state is not/ realised. Mere keeping in abeyance of penalty proceeding by the AO till the matter is decided in the High Court/Supreme Court cannot be treated as prejudicial to the interest of the Revenue.
Provisions of section 275(1A), state the course of action when quantum appeal is pending. Therefore, when two views are possible, view adopted by the AO can not be held to be erroneous. Held that the order making revision u/s.263 should be quashed.
