Quick Summary
The Supreme Court has held that the Commissioner of Income Tax can exercise revision powers under Section 263 of the Income Tax Act over the orders of the Assessing Officer which cause prejudice to the interest of the revenue. The Top Court set aside the Bombay High Courts order where the High Court had ruled that the amount paid by the assessee to its shareholders in lieu of settlement of litigation in pursuance of an arbitral award, was deductible from the sale proceeds of the property sold
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FAQ :
The Supreme Court has held that the Commissioner of Income Tax can exercise revision powers under Section 263 of the Income Tax Act over orders of the Assessing Officer that are erroneous and prejudicial to the interest of the revenue.
The case involved a deduction claimed by Paville Projects Pvt. Ltd. for amounts paid to shareholders in settlement of litigation, which the Assessing Officer allowed. The Commissioner of Income Tax later revised this order, deeming the deduction erroneous and prejudicial to revenue.
No, the Bombay High Court had set aside the Commissioner's order, ruling that the deduction was permissible. The Supreme Court, however, found the High Court's decision to be a serious error.
An AO's order can be revised by the CIT if it is erroneous and results in a loss of tax lawfully payable, thereby being prejudicial to the interests of the Revenue. If two views are possible and the AO adopted one, it's generally not revisable unless it's clearly erroneous and harmful to revenue.
The Supreme Court allowed the revenue department's appeal, set aside the Bombay High Court's judgment, and restored the order passed by the Commissioner of Income Tax under Section 263.
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