Commissioner of Income Tax vs Dhanpat Rai

Dipak Misra, C.J.—The present appeal has been filed u/s 260A of Income Tax Act, 1961 (for brevity "Act 1961") challenging the order dated 24th April, 2009 passed by the Income Tax Appellate Tribunal (in short "ITAT"), for the assessment year 2006-2007.

Ms. Prem Lata Bansal, learned counsel for revenue stated that ITAT erred in law in setting aside the order passed by the Commissioner of Income Tax (Appeal) u/s 263 of Act, 1961 and restoring the assessment order passed by the Assessing Officer. In this connection, Ms. Prem Lata Bansal, learned counsel for revenue relied upon certain observations made by this Court in Gee Vee Enterprise Vs. Additional Commissioner of Income Tax,

The ITAT in the impugned order has held as under:

In the present case, since the Ld. CIT has not pointed out any error in the order of the AO but merely directed to re-examine the issue, we hold that the Ld. CIT was incorrect in terming the assessment order as erroneous insofar as it is prejudicial to the interest of Revenue. The AO having examined the matters and having adopted the course which is legally permissible has not committed any error. We, consequently, set aside the impugned order passed by the Ld. CIT and restore that of the AO.

In our opinion, Section 263 of the Act, 1961, does not visualize a case of substitution of judgment by the Commissioner for that of the Assessing Officer who passed the order. The Commissioner on perusal of records may be of the opinion that the estimate made by the Assessing Officer is on the lower side, but that would not vest the Commissioner with the power to re-assess the accounts and determine the income at a higher figure. This is because the Assessing Officer exercises quasi judicial power vested in him in accordance with law and arrives at a conclusion.

It is settled law that two conditions have to be fulfilled before the Commissioner can invoke his power u/s 263 of the Act, 1961 namely, the order should be erroneous and further the assessing officer�s order should be prejudicial to the interest of Revenue. (Refer to MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME TAX, Commissioner of Income Tax Vs. Gabriel India Ltd., Even in the case of Gee Vee Enterprises (supra), this Court did not say that the aforesaid conditions precedent need not be fulfilled.

In the present case, we have perused the order passed by the Commissioner of Income Tax (Appeal) u/s 263 of the Act, 1961 and we find that in the said order the CIT(A) has neither found the order passed by the assessing officer to be erroneous or prejudicial to the interest of the revenue.

Consequently, as the two conditions for invoking jurisdiction u/s 263 of the Act, 1961, are not made out, the CIT(A), in our opinion, could not have exercised the said power. Accordingly, the present petition being devoid of merits is dismissed in liminie but with order as to costs.