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Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue - Assessment year 2004-05 - Where dropping of penalty proceeding was definitely erroneous and prejudicial to interest of revenue, Commissioner was right in revising such order [In favour of revenue] The Commissioner revised the assessment order wherein the Assessing Officer had dropped the penalty proceeding initiated under section 271(1)(c). The assessee contended inter alia, that the Commissioner had no jurisdiction to initiate a proceeding under section 263 as the Assessing Officer had only dropped the penalty proceeding whereas section 263 covers in its ambit only those orders which pertain to the orders of assessment which are erroneous and prejudicial to the interests of the revenue. It was canvassed that section 263 was only applicable to the order of assessment or reassessment but not to an order of penalty as envisaged under section 271(1)(c) as penalty does not form a part of the assessment. Held that two facets that are required to be taken note of are that it may be 'any order' and the same might be one passed by the Assessing Officer 'in any proceeding' under the Act. Thus, in essence, the initial words of section 263 'any proceedings' under the Act are of immense signification. Secondly, section 263 which uses the words 'any order passed therein' by the Assessing Officer also has its importance. The word, 'proceedings', hence, is a wider term compared to the word 'assessment'. Hence, if in any proceeding an order is passed dropping penalty, it is very much an order passed in any proceeding and, thus, the same would come under the exercise of revisional jurisdiction of section 263. Further the dropping of the penalty proceeding, as was manifest from the impugned order, was definitely erroneous and prejudicial to the interest of the revenue. The Commissioner had passed a detailed order holding,inter alia, that loss of revenue had been caused as it was an erroneous order. Therefore, the cumulative test was satisfied. Therefore, the order passed by the Commissioner cannot be found fault with. CASES REFERRED TO C.A. Abraham v. ITO [1961] 41 ITR 425 , Addl.…

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