S.263 Income Tax Act Can Be Invoked When AO Fails To Address Core Issue In Assessment Order: Kerala High Court

The bench opined that the main issue does not appear to have been addressed by the assessing authority while issuing an order under Section 143(3) of the Act. Since the assessment order does not appear to have addressed the issue with reference to the competing provisions, exercise of the power under Section 263 of the Act was justified.

Section 263 of the Income Tax Act, 1961, grants the Principal Commissioner or Commissioner of Income Tax the power to revise an order passed by the Assessing Officer.

Justices A. Muhamed Mustaque and Harisankar V. Menon were addressing the issue where the assessee, under the provisions of the Income Tax Act, 1961, questions the suo motu revisional steps under Section 263 of the Act as confirmed by the order of the Income Tax Appellate Tribunal.

In this case, the assessee/appellant had two units/divisions – 'Fertilizer Division' and 'Test House Division', out of which, the Test House Division was sold as a case of 'slump sale' with reference to the provisions of Section 50B of the Income Tax Act, 1961.

A return was also presented in that fashion. Steps under Section 143(3) of the Act were taken, and an order dated 20.12.2018, the same was finalised.

Later, a notice under Section 263 of the Act dated 15.10.2020 was issued proposing to set aside the assessment order referred to above, to which the assessee sought to file objections placing reliance on the afore observations, in support of its contention that proper adjudication has been carried out in the matter by the assessing authority.

The Commissioner, however, found that the Assessing Officer had not enquired into the entire aspects of the matter and had merely completed the assessment, accepting the stand taken by the assessee, which is an incorrect assumption of facts.

The appeal against the afore-mentioned order is rejected by the Tribunal in the impugned order. It is in such circumstances that the captioned appeal is filed by the assessee under Section 260A of the Act.

The main contention urged on behalf of the assessee is with reference to the very invocation of the power under Section 263 of the Act, with reference to the enquiry carried out by the assessing authority.

The bench stated that the very question as to whether the transaction – sale is to be considered as a case of “slump sale” under Section 50B of the Act qua the provisions of Section 50 of the Act as per which the same is to be treated as a case of short term capital gain; does not appear to have been addressed by the assessing authority while issuing order under Section 143(3) of the Act.

The bench further noted that the assessment order makes reference to certain documents/materials produced by the assessee. However, there is no adjudication with reference to the provisions of the statute in the assessment order.

Since the assessment order does not appear to have addressed the issue with reference to the competing provisions, exercise of the power under Section 263 of the Act was justified, added the bench.

In view of the above, the bench dismissed the appeal.

Case Title: Sterling Farm Research and Services Pvt. Ltd. v. The Commissioner of Income Tax

Citation: 2025 LiveLaw (Ker) 690

Case Number: TA NO. 55 OF 2024

Counsel for Appellant/Assessee: Kuryan Thomas

Counsel for Respondent/Department: Jose Joseph

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