JAYESH SANGHRAJKA & CO. Chartered Accountants From the Research Desk______________________________________ How to Deal with order U/S 263 of IT Act Section 263 deals with the powers of the Commissioner to revise the orders pre-judicial to the interest of the Revenue. During recent times, this power is being utilised frequently, particularly with respect to assessment passed u/s 147 of I.T. Act, especially in cases where share capital were raised by the concerned companies. In this article, an attempt is made to under-stand the scope of the Section and conditions necessary for the exercise of the power u/s.263. Section 263 of I.T. Act reads as follows: "263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Thus, the Commissioner authority is to direct a fresh assessment and not to pass assessment himself. The Commissioner may give orders to ¾ Cancel the assessment order and direct to pass a fresh assessment. ¾ Pass fresh assessment order on certain issues ¾ May give specific direction to make certain additions or disallowances. When section 263 can be evoked? The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. 1 his letter is for private circulation only. The letter is brought by a group of professionals – Batgach. These professionals represent several well established Chartered Accountancy Firms. The letter is being brought only with the intention to give information & not to solicit clients or business against the guidelines issued by The Institute of Chartered Accountants of India. JAYESH SANGHRAJKA & CO. Chartered Accountants From the Research Desk______________________________________ If one of them is absent — if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue — recourse cannot be had to S. 263(1) of the act. The expression “erroneous” has not been defined in the Act. However, Black’s Law Dictionary defines the word “erroneous” to mean “involving error; deviating from the law”. “Erroneous assessment” refers to an assessment that deviates from the law and is, hence, invalid. The erroneous assessment pertains to a defect, which is jurisdictional in nature. It does not refer to the judgment of the Assessing Officer in fixing the amount or valuation of property. “Erroneous judgment” means one rendered according to course and practice of court; but contrary to law, upon a mistaken view of law or upon an erroneous application of legal principles. When section 263 cannot be evoked? Section 263 cannot be evoked in the following cases:¾ The order of the AO cannot also be revised if it has been passed after application of mind. ¾ Merely because the opinion of the CIT is different from that of AO this section cannot be resorted to. Conclusion On passing of order u/s 263 of I.T. Act, the assessee has two options: • Let the fresh order be passed by the A.O. in terms of order of CIT u/s 263. The time limit of passing such order is one year from the end of financial year in which order u/s 263 is passed by the CIT [Section 153(2A)], and • File appeal to ITAT against order of CIT u/s 263 of I.T. Act within sixty days of receipt of order u/s 263 by it. If the ITAT rejects section 263 order, then the A.O. is not bound to pass order pursuant to 263 order. However, this is possible only when ITAT passes order prior to A.O. passing order pursuant to directions of CIT u/s 263 of I.T. Act. Even if the A.O. passes order prior 2 his letter is for private circulation only. The letter is brought by a group of professionals – Batgach. These professionals represent several well established Chartered Accountancy Firms. The letter is being brought only with the intention to give information & not to solicit clients or business against the guidelines issued by The Institute of Chartered Accountants of India. JAYESH SANGHRAJKA & CO. Chartered Accountants From the Research Desk______________________________________ to order passed by ITAT against 263 order, and if ITAT passes order rejecting section 263 order, order u/s 254 of the Act should be passed by A.O. giving effect of ITAT’s order and nullify the additions (if any) made in fresh assessment order passed pursuant to 263 order. Even if the assessee loses its appeal in ITAT against 263 order passed by CIT, he doesn’t lose a right to file appeal against fresh order passed by A.O. pursuant to 263 order. Thus, it becomes advisable to file appeal to ITAT against 263 order and preferably pursue the case such that the order is passed by ITAT before A.O. passes fresh assessment order. Now a day, ITAT generally gives time of four to six months from the date of filing appeal. Thus, if the ITAT passes order quashing 263 order in the first hearing, chances are bright that the no fresh order would have been passed by the A.O. by that time. 3 his letter is for private circulation only. The letter is brought by a group of professionals – Batgach. These professionals represent several well established Chartered Accountancy Firms. The letter is being brought only with the intention to give information & not to solicit clients or business against the guidelines issued by The Institute of Chartered Accountants of India.