Section 254, read with section 263, of the Income-tax Act, 1961

Court :
HIGH COURT OF GUJARAT

Brief :
Section 254, read with section 263, of the Income-tax Act, 1961 - Appellate Tribunal - Powers of - Assessment year 1986-87 - Whether where Commissioner passed an order under section 263 directing disallowance of additional commission on ground that Assessing Officer had not made proper inquiries and had not verified claim regarding additional commission, Tribunal while deciding assessee’s appeal against aforesaid order passed by Commissioner, had jurisdiction to modify order of Commissioner by restoring matter to file of Assessing Officer with a direction to make proper investigation and then decide question of allowability of additional commission in accordance with law - Held, yes Facts The assessee had claimed deduction towards commission. The amount of commission comprised of two parts : (1) regular commission which was deducted by the consignees before the sale proceeds were remitted to the assessee, and (2) additional commission which was over and above the amount of commission payable to consignee distributors as per agreement entered into by the consignee distributors with the assessee. The Assessing Officer allowed the claim while framing the assessment order. The Commissioner initiated action under section 263 and came to the conclusion that the Assessing Officer had not made proper inquiries and verified the claim regarding additional commission inasmuch as claim was premature and was only in the nature of provision. Therefore, the Commissioner directed the Assessing Officer to disallow the assessee’s claim and revise the assessed income. On appeal, the Tribunal upheld the invocation of section 263, but modified the order of the Commissioner to the extent of setting aside the direction to finally disallow the commission, by substituting the same with a direction to the Assessing Officer to make proper inquiries and then decide whether the additional commission was allowable or not. On reference, the assessee submitted that the Tribunal had committed an error in modifying the order of the Commissioner under section 263 in the aforesaid manner as the Tribunal could only uphold the order of the Commissioner or hold that the same was bad in law.

Citation :
Harsiddh Specific Family Trust v. Commissioner of Income-tax