Revision of orders prejudicial to revenue
The Principal Commissioner or Commissioner (the tax authority) is empowered under sec.263 (subject to the satisfaction of certain pre-requirements and conditions therein) of the Income Tax Act 1961 (the Act) to enhance or modify an assessee’s original income tax assessment (order) as passed by the relevant Assessing Officer (AO), or even cancel such assessment and direct a fresh assessment be made, in ‘revision’ of the said assessment order considered erroneous in so far as it is prejudicial to the interests of revenue. No such order in revision is however permitted after the expiry of 2 years from the end of the financial year in which the AO’s order sought to be revised, was passed.
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Erroneous and Prejudicial are ‘conjoint twins’
The powers of revision under sec.263 cannot be invoked merely to correct each and every type of mistake or error committed by the AO concerned, unless such error comprises of an incorrect assumption of facts or an incorrect application of law that results in revenue loss.
Further, the said provision requires the phrase “prejudicial to the interests of the Revenue” to be read in conjunction with such an erroneous order, such that every loss of revenue as a consequence of the relevant AO’s order cannot be treated as prejudicial to the interests of the Revenue.
However, where an AO passes a stereo-typical order through non-application of mind to the assessee’s claims in the income tax return as filed and simply accepts what is stated therein without an enquiry as to its truthfulness, correctness or accuracy or where such enquiry conducted is exceedingly inadequate in the given circumstances so as to be considered as a ‘no enquiry’, such order in all probability could potentially be lawfully revised under sec.263 of the Act.
Orders passed by the AO ‘deemed’ to be erroneous
The Finance Act of 2015 has recently inserted Explanation 2 (applicable from 1 June 2015) to sec.263 which ‘deems’ an AO’s order as erroneous and prejudicial to revenue’s interests for the purpose of passing orders in revision, if in the opinion of the said authority —
- The relevant AO’s order has been passed without making inquiries or verification which should have been made;
- The said order allows a relief without inquiring into the claim;
- The said order is not made in accordance with any order, direction or instruction issued by the CBDT (the Board) under sec.119 of the Act; or
- The said order has not been passed in accordance with any decision which is prejudicial to the assessee, as pronounced by the relevant jurisdictional High Court or the Supreme Court of India, in the case of the assessee or any other person.
Through the said amendments, the Board has tried to rein in, statutorily, some of the discretionary powers of the AO, exercised when making an assessment order and so embedded as law, grounds that may otherwise have or are being taken to justify revision orders under sec.263.
Show Cause Notice and Opportunity of being heard
Before passing any revision orders, the concerned tax authority would give the concerned assessee an opportunity of being heard via a show cause notice i.e. to know the details and reasons or grounds for such proposed revision orders and place on record before such authority, evidence and make submissions (verbal and documentary) to (re) establish the facts that support the said AO’s assessment order as not being erroneous and/or being prejudicial to the interests of revenue.
It is therefore crucial that such said notice and opportunity is appropriately and urgently responded to by the assessee concerned for a just and informed outcome. It is therefore recommended that professional help on how to so respond and information on available legal remedies if adverse Revision/assessment orders are passed should be obtained.
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