CIT can't exercise revisionary powers to re-examine certain items of expenses

IT: In absence of recording any reason for initiation of revisional proceedings, Commissioner was not justified in issuing notice under section 263 merely on ground that certain items of expenses were required to be examined again

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[2013] 35 taxmann.com 567 (Karnataka)

HIGH COURT OF KARNATAKA

IBM India (P.) Ltd.

v.

Commissioner of Income-tax, Large Tax Payers Unit*

RAM MOHAN REDDY, J.

WRIT PETITION NOS. 5042 & 5043 OF 2013 (T-IT)

MARCH  20, 2013 

Section 37(1), read with section 263, of the Income-tax Act, 1961 - Business expenditure - Allowability of [Revision by Commissioner] - Assessment year 2006-07 - For relevant assessment year, assessment order was passed in case of assessee under section 143(3) - Commissioner issued a notice under section 263 stating that there was a need to examine assessment order on certain aspects - Whether, in absence of recording an opinion over why orders of assessment required initiation of revisionary proceeding, mere expression that certain items of expenses, etc. were required to be examined, did not satisfy requirement of issue of show-cause, notice under section 263 - Held, yes - Whether, therefore, impugned notice deserved to be quashed - Held, yes [In favour of assessee]

T. Suryanarayana and Sandeep Huilgol for the Petitioner. K.V. Aravind for the Respondent.

ORDER

1. Common question of law and that of fact arise for decision-making, hence with the consent of the learned Counsel for the parties, petitions are clubbed together, finally heard and are disposed of by this order.

2. Petitioner is aggrieved by the Show-Cause Notices issued by the Commissioner of Income-Tax, Large Tax Payers Unit, invoking Section 263 of the Income-tax Act, 1961 (for short, 'the Act') in the matter of orders passed by the Assessing Officer under Section 143(3) of the Act for the assessment years 2006-07 and 2007-08.

3. There is force in the submission of the learned senior counsel for the petitioner that in the absence of recording an opinion over why the orders of assessment require initiation of revisionary proceeding, the mere expression that certain items of expenses etc., "need to be examined" does not satisfy the requirement of the issue of Show-Cause Notices, under Section 263 of the Act. Having perused the Show Cause-Notices impugned undoubtedly, the Commissioner of Income Tax, without disclosing the exact nature of the infirmity noticed in the orders under Section 143(3) of the Act of the Assessing Officer opined that show-cause notices are necessary since there is a need to examine the said order on certain aspects.

4. Learned senior counsel hastens to add that the Dispute Resolution Panel (for short, 'DRP' ), having already considered various aspects of the objections raised by the petitioner over the draft assessments, which when resolved followed by an assessment order of the Assessing Officer, the Commissioner of Income Tax has no jurisdiction to initiate a revisionary proceeding in substitution of the orders passed by the DRP. If that is so, it is open for the petitioner to point out in the explanation to the show-cause notices over such orders of the DRP.

5. Suffice it to state that the show-cause notices impugned do not satisfy the requirement of law and therefore, liable to be quashed, reserving liberty to the Commissioner of Income Tax to issue show-cause notices afresh, comprehensively including all such infirmities as are noticed by him in the orders passed under Section 143(3) of the Act, so as to enable petitioner to file effective explanation.

Petitions are ordered accordingly.