Income Tax Act, 1961

--Revision under section 263--Erroneous and prejudicial order Application of correct provision of law--Assessee was in business of development of properties and running convention centres. Commissioner invoked section 263 and held that assessing officer had wrongly allowed additional depreciation on plants and machinery which were used for land development and resort and not in manufacture or production of article or things. Further, deduction under section 80-IB(7B) was wrongly allowed to convention centres as separate books of account could not be maintained by assessee and closing stock was lower than declared value of stock disclosed to bank for loan purposes. Held: Rightly so. As both the conditions precedent of section 263 being assessing officers order should be erroneous and prejudicial to revenue were fulfilled, revision by Commissioner was therefore, justified as assessing officer failed to apply correct provision of loss at the time of assessment.

Regarding invoking of the provisions of section 263 the Commissioner can suo motu invoke the provisions of section 263, if the assessment order is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, viz., (i) the order sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of this is-absent if the order of the Income Tax Officer is erroneous but is not prejudicial to the interests of the Revenue or if it is not erroneous but is prejudicial to the interests of the Revenue recourse cannot be had to section 263(1). There can be no doubt that the provisions cannot be invoked to correct each and every type of mistake or error committed by the assessing officer. However, an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interests of the Revenue' is not an expression of art and it is not defined in the Income Tax Act. It should be understood in ordinary meaning, it is of wide import and is not confined to laws of tax. Applying the scope of section 263 to the facts of the present case, while passing the order, the assessing officer has not applied the correct provisions of the Act as they stood during the relevant assessment year under consideration. From the record, the assessing officer framed the assessment order under section 143(3) on 31-12-2008, wherein the assessee's claim under section 32(1)(iia) with reference to the additional depreciation on plant and machinery was allowed. Similarly, the claim of the assessee under section 80-IB(7B) was allowed though the assessee had not maintained separate books of account for the business of the convention centre. The assessing officer not discussed these two issues in his assessment order. He has just accepted what the assessee wanted to be accepted by him. The assessing officer has also not discussed the allowability or disallowance of these deductions. The order of the assessing officer is a non-speaking one and is silent on these aspects. Thus, it can be said that the order of the assessing officer is erroneous in so far as it is prejudicial to the interests of the revenue. To that extent, there is no hesitation to uphold the Commissioner's action in exercising jurisdiction under section 263. [Para 19]