Consequential Order Passed By Assessing Authority Beyond Terms Of Remand By Commissioner Is Unacceptable: Kerala High Court

Section 263 of the Income Tax Act, 1961 empowers the Commissioner of Income Tax to revise any order passed under the Income-tax Act, 1961, which is erroneous insofar as it is prejudicial to the interest of the revenue.

The assessee/appellant underwent an assessment which was completed under Section 143(3) of the Income Tax Act. The assessee did not appeal this assessment order. Subsequently, the Commissioner of Income Tax (CIT) initiated revision proceedings under Section 263 of the I.T. Act by issuing a notice, proposing to revise the assessment order concerning four specific issues. In response, the assessee submitted a reply.

The CIT directed the Assessing Authority to re-examine only two of these issues. However, while implementing this order, the Assessing Authority expanded the scope, addressing additional issues not directed by the CIT, leading to a significant tax demand. The assessee filed an appeal to the First Appellate Authority.

The First Appellate Authority ruled in favor of the assessee, holding that the expanded consequential order was legally unsustainable. Aggrieved by the order of the First Appellate Authority, the Revenue preferred an appeal before the Appellate Tribunal which was allowed. The assessee has challenged the order passed by the Appellate Tribunal before the Kerala High Court.

The bench noted that the Appellate Tribunal, however, appears to have completely overlooked the fact that the First Appellate Authority, against whose order the Revenue had come in appeal before the Tribunal, was actually considering a consequential order passed pursuant to an order of the Commissioner under Section 263 of the I.T. Act. and not an original assessment order passed under Section 143(3) of the I.T. Act.

“the concern of the Assessing Authority, while passing a consequential order, has to be limited to those specific issues that have been remanded to it for consideration by the Commissioner. Consequently, the role of the First Appellate Authority, while considering an appeal preferred against such consequential order passed by the Assessing Authority, must also be with regard to the findings of the assessing authority on those very issues that were remanded for fresh consideration by the Commissioner under Section 263 of the I.T. Act,” added the bench.

The bench stated that the Assessing Authority, who passed the consequential order, apparently strayed beyond the terms of the remand by the Commissioner under Section 263 of the I.T. Act. This was wholly unacceptable.

In view of the above, the bench allowed the appeal and directed the Assessing Authority to pass fresh order.

Counsel for Appellant/ Assessee: Anil D. Nair

Counsel for Respondent/ Department: P.K. Ravindranatha Menon and Jose Joseph

Case Title: Manjoo and Company v. The Assistant Commissioner of Income Tax Central Circle

Case Number: I.T.A.NO.40 OF 2020

Citation: 2024 LiveLaw (Ker) 726

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