Law:

Section:

Section 263(1) of the Income-tax Act, 1961 - Revision - Orders prejudicial to revenue - Whether merely because ITO who passes assessment order does not have jurisdiction to do so, his order would become erroneous and prejudicial to revenue - Held, no - Whether commissioner while setting aside an assessment order has to briefly point out as to how assessment order was prejudicial to interests of revenue - Held, yes Words and phrases - 'Insofar as it is prejudicial to the interests of revenue' occurring in section 263(1) of the income-tax act, 1961 Facts The assessee's assessment was made by an ITO who did not have jurisdiction over him. The Commissioner, acting under section 263(1), set aside the assessment order observing that there was question of under-assessment and wrong computation of income in the case and that the ITO appeared to have made an under-assessment if one looked to the assessee's records and the profits shown by others in the same line. He, however, had not pointed out as to how it was a case of under-assessment. On appeal, the Tribunal cancelled the Commissioner's order, since he had not at all shown in what respect under-assessment had been made and how the assessment made was prejudicial to the interests of the revenue. On reference: Held Before acting under section 263(1) the Commissioner must be satisfied on the materials on record that the order has caused prejudice to the interests of the revenue or was likely to cause such prejudice. The expression 'in so far as it is prejudicial to the interests of the revenue' has be read in context with the loss of revenue to the department. Merely because the assessment order is passed by an ITO not having jurisdiction over the assessee, the assessment order cannot be said to be prejudicial to the interests of the revenue. Further, while setting aside the assessment order under section 263(1) and directing reassessment, the Commissioner is expected to point out briefly as to how the order in question is prejudicial to the interests of the revenue. In the instant case, since the Commissioner never examined the assessment order in light of the question as to whether the assessment order was…

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