Gauhati High Court: In the present writ petition, challenge was made to the Show Cause Notice dated 24-03-2021 and ex-parte Order dated 28-03-2021 issued by Respondent 2, Principal Commissioner of Income Tax initiating proceedings under Section 263 of the Income Tax Act, 1961 (‘the IT Act’) for the assessment year 2017-2018. Kaushik Goswami, J., opined that the Principal Commissioner of Income Tax did not apply his mind and initiated proceedings only based on the proposal by the Assistant Commissioner of Income Tax. Therefore, the very initiation of the proceeding in the present case was illegal, without jurisdiction and not tenable in law. Further, the Court held that the long-term capital gains were exempted from Income Tax and therefore, their non-disclosure could not result in causing prejudice to the interest of revenue or loss of revenue. Thus, the Court quashed and set aside the Show Cause Notice and the ex-parte Order.
Background
The petitioner filed its original return under Section 139(1) of IT Act for the assessment year 2017-2018 on 01-08-2017 declaring a total income of Rs 43,95,310. Later, vide Notice dated 09-08-2018 under Section 143(2) of IT Act, petitioner’s case was selected for “limited scrutiny” under Computer Assisted Scrutiny Selection. During assessment proceedings, a Show Cause Notice dated 29-09-2018 was issued by Respondent 4’s predecessor, the then Assessing Officer and the same was duly replied to vide letter dated 19-12-2018 by the petitioner. Thereafter, the then Assessing Officer passed the final assessment under Section 153-D/143(3) of IT Act vide Assessment Order dated 28-12-2018 (‘Assessment Order’), accepting the returned income of Rs 43,95,310.
However, after completion of Assessment, vide Show Cause Notice dated 24-03-2021, Respondent 2 directed the petitioner to show cause as to why order should not be passed under Section 263 of IT Act for revision of the Assessment Order passed by the then Assessing Officer for the assessment year 2017-2018. The only allegation made in the Show Cause Notice was that an amount of Rs 5,30,257 being the difference between long-term capital gains from sale of shares credit at Rs 36,89,039 shown in the computation of income at Rs 31,58,782 had not been brought to tax in the original assessment proceedings under Section 143(3) of IT Act. Thereafter, by Show Cause Notice, the petitioner was directed to appear for hearing on 26-03-2021 but due to such short span of time, the petitioner could not attend the Show Cause Notice. Respondent 2 thereafter vide his ex-parte Order dated 28-03-2021, held the Assessment Order passed by Respondent 4 as erroneous and prejudicial to the interests of the revenue.
Analysis, Law, and Decision
The issue for consideration was “whether the Assessment Order dated 28-12-2018 could be said to be erroneous and prejudicial to the interest of the revenue for non-disclosure of Rs 5,30,257 as long-term profit in the computation sheet though the same was shown in the capital account, warranting exercise of revisional jurisdiction under Section 263 of IT Act?”.
The Court opined that the suo motu revision proceedings under Section 263 of IT Act could be exercised only when the Revisional Authority considered the Assessment Order to be erroneous as far as the same was prejudicial to the interest of revenue. Thus, merely if the Assessment Order was erroneously done was not sufficient for exercising revisional jurisdictional power unless and until the same was prejudicial to the interest of revenue. Therefore, the twin conditions of the order being erroneous and prejudicial to the interest of revenue must have existed before power under Section 263 of IT Act was exercised.
The Court noted that in the present case, the suo motu revisional proceeding was initiated based on a proposal under Section 263 of IT Act dated 22-03-2021 submitted by the Assistant Commissioner of Income Tax which was duly forwarded by the Joint Commissioner of Income Tax. Based on the said proposal, the notice of hearing under Section 263 of IT Act dated 28-12-2018 was issued by the Revisional Authority. Thus, the Court opined that there was no independent application of mind by the Principal Commissioner of Income Tax.
The Court observed that the proceeding under Section 263 of IT Act could be initiated only when the Commissioner based on the materials available on record called for by him, concludes that the order passed by the assessing authority was erroneous as far as the same was prejudicial to the interest of Revenue. Thus, the order must be firstly erroneous and by virtue of the order being erroneous, prejudice had been caused to the revenue’s interests. The Court opined that both the conditions must be satisfied.
The Court opined that since the Principal Commissioner of Income Tax did not apply his mind, therefore, the very initiation of the proceeding in the present case was illegal, without jurisdiction and not tenable in law.
Thus, the Court held that the the long-term capital gains were exempted from Income Tax and therefore, the non-disclosure of Rs 5,30,257 while computing the long-term capital gains could not result in causing prejudice to the department. However, even if the said amount of Rs 5,30,257 was further considered to be as long-term capital gain there would have been no further Income Tax Liability and thereby no prejudice would have been caused to the department and thereby the preconditions for the exercise of powers under Section 263 of IT Act were not wholly fulfilled in view of the fact that the said amount of Rs 5,30,257 being long-term capital gain was exempted. Therefore, non-disclosure of the said amount in the computation sheet could be said to be prejudicial to the interest of revenue and no loss of revenue.
Thus, in the absence of any prejudice being caused to the revenue, wherein, the impugned proceedings initiated under Section 263 of IT Act was without jurisdiction, illegal, and erroneous. Therefore, the same was bad-in-law. Hence the impugned ex-parte Order dated 28-03-2021 was unsustainable in law. Therefore, the Show Cause Notice and the ex-parte Order issued by Respondent 2 initiating proceedings under Section 263 of IT Act for the assessment year 2017-2018, were quashed and set aside.
[Karan Jain v. Union of India, 2024 SCC OnLine Gau 586, decided on 08-05-2024]
Advocates who appeared in this case :
For the Petitioner: A Saraf, Senior Counsel
For the Respondent: S. Chetia, Standing Counsel, Income Tax Department
