The Kerala High Court has ruled that an order passed by the Commissioner of Income Tax (Appeals) under Section 263 of the Income Tax Act cannot be considered a closed remand. This means that there is no requirement to separately challenge the order under Section 263.
A division bench comprising Justices A.K. Jayasankaran Nambiar and Easwaran S. observed:
"In as much as the Commissioner of Income Tax (Appeals) had decided the appeal preferred by the assessee against the revised assessment order on merits, it was incumbent upon the tribunal to have decided the appeal on merits rather than finding that the assessee ought to have questioned the order under Section 263 in a separate proceeding. Therefore, the tribunal erred egregiously in dismissing the appeal preferred by the assessee as 'not maintainable.'"
Understanding Section 263 of the Income Tax Act
Section 263 of the Income Tax Act, 1961 empowers the Principal Chief Commissioner, Chief Commissioner, or Principal Commissioner to revise any order passed by the Assessing Officer if it is found to be erroneous and prejudicial to the interests of the revenue.
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Background of the Case
In this case, the assessment was originally completed under Section 143(3) read with Section 147 of the Income Tax Act, 1961. However, the Commissioner of Income Tax (CIT) exercised suo moto revisional power under Section 263, stating that the assessing officer had failed to conduct proper inquiries regarding the assessee's claim for set-off of carry-forward depreciation while computing book profit under Section 115JB of the IT Act.
Although the assessee objected to this proposal, the Commissioner rejected the objection and held:
"The assessing officer had not conducted a proper inquiry to examine the genuineness of the claim and, therefore, the assessment order was erroneous and prejudicial to the interest of the revenue."
As a result, the Commissioner set aside the assessment order and remanded the matter back to the assessing officer for a fresh assessment.
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On remand, the assessing officer issued a revised assessment order. The assessee, aggrieved by this order, filed an appeal before the Commissioner of Income Tax (Appeals), who dismissed it. Following this, the assessee approached the Income Tax Appellate Tribunal (ITAT) for relief.
However, the Tribunal ruled that since the assessee did not challenge the order passed under Section 263 separately, the subsequent proceedings could not be challenged before the tribunal. Consequently, the appeal was dismissed as not maintainable.
High Court’s Ruling
The Kerala High Court overturned the tribunal's decision, ruling that the order passed under Section 263 was not a closed remand but an open remand. The court emphasized:
"The order passed by the Commissioner of Appeals under Section 263 of the IT Act cannot be construed as a closed remand. While exercising suo moto power of revision under Section 263, the Commissioner found that the order of assessment was erroneous and prejudicial to the revenue. Therefore, the order was set aside and remanded for fresh consideration on merits."
The High Court held that since the remand was open, the assessee was not required to challenge the Section 263 order separately. The tribunal’s decision to dismiss the appeal was erroneous.
Key Takeaways
- The Commissioner’s order under Section 263 is an open remand, not a closed remand.
- The assessee is not required to file a separate challenge against the order under Section 263.
- The Tribunal erred in dismissing the appeal as not maintainable.
- The High Court clarified that the order under Section 263 allows a fresh assessment on merits and does not conclude the matter.
