No Revision under section 263 merely on ground that AO passed an order relying on ITAT ruling which was reversed by HC

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No Revision under section 263 merely on ground that AO passed an order relying on ITAT ruling which was reversed by HC

 

CIT v. Canara Bank – [2021] 123 taxmann.com 207 (Karnataka)

Short Overview :

Assessee filed return of income and its case was selected for scrutiny. During assessment proceedings, out of provision made by assessee for depreciation on investment, Assessing Officer (AO) made additions in respect of provision relating to investments in India and excluded a sum pertaining to investments outside India. However, Commissioner (CIT) invoked re visionary power under Section 263 on the ground that order passed by AO was perverse and prejudicial to the interest of revenue.

Assessee preferred an appeal before ITAT. ITAT placing reliance on the decision rendered by the tribunal in earlier years held that CIT had erred in holding that the order passed by AO was erroneous and prejudicial to the interest of revenue.

Since, the tribunal had already decided this issue in favour of assessee, the same was binding on both the parties. Revenue contended that the sole foundation of the order passed by ITAT was the decision passed by the tribunal in the appeals. It was pointed out that against the decision relied upon by ITAT, revenue had preferred an appeal before High court. High Court set aside the order passed by the tribunal and the matter was remanded to AO to consider the matter afresh in accordance with the law. Thus, revenue submitted that in view of the order passed by High court, the order passed by ITAT deserves to be set aside and the matter be remitted to AO for decision afresh in accordance with the law.

On appeal, Karnataka High Court held that the Supreme Court in case of CIT v. G.M. Mittal Stainless Steel (P.) Ltd. [2003] 130 Taxman 67 (SC) held that power under Section 263 has to be exercised on the basis of the material, which was available at the time when CIT passed an order. Since, the order passed by ITAT was operative, order passed by AO could not have been termed as erroneous. Further, merely because the order of AO was passed relying on the decision of ITAT which was subsequently reversed by High court, Section 263 revision could not be justified.

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