The A.O. recommending a revision to the CIT has no statutory sanction and is a course of action unknown to the law

FACTS
The assessee, a foreign company, filed its return of income declaring Nil total income. The assessment of its total income was completed on 27th March, 2015, again assessing Nil total income. Subsequently, the CIT received a proposal from the A.O. for revision based on which the CIT carried out a revision by observing that the assessee had entered into an agreement on 1st October, 2011 with its related concern in India for supply of software licenses and IT support services. The amount of service fee received from the Indian entity, collected on the basis of number of users, was claimed as not chargeable to tax in India within the meaning of Article 12 of the India-Sweden Double Taxation Avoidance Agreement. The CIT opined that the receipt from the Indian entity was in the nature of ‘Royalty’ and not ‘Fees for Technical Services’. After issuing a show cause notice and considering the reply of the assessee, the CIT set aside the order passed by the A.O. and remitted the matter to the A.O. for treating the amount received from the Indian entity as ‘Royalty’ chargeable to tax u/s 9(1)(vi).

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD
The Tribunal noted that the order of the CIT mentioned that ‘A proposal for revision under section 263 of the IT Act, 1961 was received from DCIT(IT)-1, Pune through the Jt. CIT(IT), Pune vide letter No. Pn/Jt.CIT(IT)/263/2016-17/61 dated 23rd May,. 2016’. It observed that the edifice of the revision in the present case has been laid on the bedrock of receipt of the proposal from the A.O.

The Tribunal having noted the provisions of section 263(1) held that the process of revision u/s 263 is initiated only when the CIT calls for and examines the record of any proceeding under the Act and considers that any order passed by the A.O. is erroneous and prejudicial to the interest of the Revenue. The twin conditions are sine qua non for the exercise of power under this section. The use of the word ‘and’ between the expression ‘call for and examine the record…’ and the expression ‘if he considers that any order… is erroneous…’ abundantly demonstrates that both these conditions must be cumulatively fulfilled by the CIT and in the same order, that is, the first followed by the second. The kicking point is the CIT calling for and examining the record of the proceedings leading him to consider that the assessment order is erroneous, etc. The consideration that the assessment order is erroneous and prejudicial to the interests of the Revenue should flow from and be the consequence of his examination of the record of the proceedings. If such a consideration is not preceded by the examination of the record of the proceedings under the Act, the condition for revision does not get magnetised.

The Tribunal held that it is trite that a power which vests exclusively in one authority can’t be invoked or caused to be invoked by another, either directly or indirectly. The A.O. recommending a revision to the CIT has no statutory sanction and is a course of action unknown to the law. If the A.O., after passing an assessment order finds something amiss in it to the detriment of the Revenue, he has ample power to either reassess the earlier assessment in terms of section 147 or carry out rectification u/s 154. He can’t usurp the power of the CIT and recommend a revision. No overlapping of powers of the authorities under the Act can be permitted.

As revision proceedings in this case triggered with the A.O. sending a proposal to the CIT and then the latter passing an order u/s 263 on the basis of such a proposal, the Tribunal held that it became a case of jurisdiction defect resulting in vitiating the impugned order.

The Tribunal quashed the impugned order on this legal issue itself.