SC agrees with Income Tax Commissioner setting aside assessment causing revenue loss

An Assessing Officer in the Income Tax Department is responsible for correctly determining how much an assessee is liable to pay and which tax deductions they are eligible for. But can higher authorities step in if the officer's mistakes are denting the revenue of the tax department?

The Supreme Court has agreed that if an error in assessment by an officer goes against the department's interests, the Income Tax Commissioner can set aside the order.

Breaking down the case

• It upheld the CIT's intervention in the case of a property sale by a firm named Paville Projects, where it claimed the deduction of the amount paid as settlement to shareholders, from the proceeds of the deal.

• An order by the Assessing Officer allowed the deduction as cost of improvement while calculating long-term capital gains under the Income Tax Act.

• But the revenue department held that this was an error on the AO's part, since the settlement was between family members and the rights of the assessee on the property were absolute.

• It added that no interest was acquired in the asset through the settlement, and hence the AO's order was bad in law.

Income Tax Commissioner protecting revenue

• The Income Tax Commissioner then used revisionary powers via Section 263 to set aside the order, but the Income Tax Appellate Tribunal ruled against it.

• The Bombay High Court dismissed the revenue department's appeal against the ITAT, and set aside the CIT's order.

• But the Supreme Court found the Income Tax Commissioner's action correct, and upheld the order in the revenue department's interest.