Once Revision Order Become Final, No Question Of Passing Another Order Will Arise: Meghalaya High Court

The Meghalaya High Court has held that once the revision order becomes final, no question of passing another order will arise.

The bench of Chief Justice S. Vaidyanathan and Justice W. Diengdoh has observed that the Assessing Officer had passed an order under Section 263 of the Income Tax Act, 1961, which was set aside by the Principal Commissioner of Income Tax, Shillong. The order of reassessment was passed by the assessing officer. Once the order under Section 263 of the Income Tax Act, 1961, has become final and stood quashed, no question of passing another order will arise in view of the fact that the subsequent order passed by the Assessing Officer is invalid in the eyes of law, as the opinion formed by the Assessing Officer is not sustained on the reasoning that revision under Section 263 is not permissible.

Section 263 of the Income Tax Act pertains to the revision of orders prejudicial to revenue. It states that the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act if he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue.

The respondent/assessee was established in 1976 and operates the largest hydropower plant in the North Eastern Region. The Principal Commissioner of Income Tax, Shillong, observed that the Mercantile System had been followed by the company, as per which transactions are recorded when they arise and incomes are recorded in the books of the accounts when they are earned, irrespective of whether they are received or accrued. Therefore, the hybrid system of accounting, which is a mixture of cash basis and accrual basis of accounting, cannot be adopted by the company as per the provisions of Section 145(1) of the Income Tax Act, 1961.

The Principal Commissioner of Income Tax, Shillong, set aside the order of assessment under Section 263 of the Income Tax Act, 1961, for the years 2014–2015, for re-computing the income of the company, as per which the income was reassessed after making an addition.

The company filed an appeal before the Commissioner of Income Tax (A), Shillong, in which the order of reassessment was upheld by an order. Again, two appeals were preferred by the company against the orders by which the Income Tax Appellate Tribunal quashed the revisionary proceedings carried out under Section 263 and closed the other appeal as infructuous.

The department contended that the method of late payment surcharge (LPS) on a cash basis had all along been followed by the company from 2003–2004, and similar views of accepting such a method of LPS on a cash basis even when the books of account are maintained on the Mercantile System have been recognized through various judicial pronouncements. Therefore, the order of re-assessment made by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Department, and the order of the Tribunal warrants interference by this Court, as it was obligatory on the part of the company to adhere to the directions issued by the Ministry of Power then and there to account for interest on a cash basis.

The assessee contended that the order of the Tribunal is perfectly justified and the appeal filed by the department is liable to be dismissed.

The court held that it is true that the term “res judicata” cannot be blindly applied to the income-tax proceedings, but at the same time, in the absence of a challenge to the fundamental aspect permeated through different assessment years, no attempt could be made to alter the position in the subsequent year.

The court, while dismissing the appeal of the department, held that the order of the Tribunal was wholly justified.

Counsel For Appellant: S.C. Keyal

Counsel For Respondent: Ved Jain

Case Title: Pr. Commissioner of Income Tax, Shillong Versus M/s North Eastern Electric Power Corporation Limited

Case No.: ITA No.2/2024

Click Here To Read The Order