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ITAT Delhi Quashes Revision Order Against Over Unauthorised Section 263 Notice
The has set aside a revision order passed under against Senior Advocate for , ruling that the notice was issued . A Bench comprising Vice President Mahavir Singh and Accountant Member Sanjay Awasthi held that an officer promoted to the rank of Chief Commissioner of Income Tax (CCIT) cannot exercise the powers of a Principal Commissioner (PCIT) under Section 263 without an express authorisation from the under .
Case Background
Rohatgi, a designated Senior Advocate and former Attorney General of India, filed his return for AY 2022-23 declaring an income of Rs. 162.94 crore. The case was selected for scrutiny, and the Assessing Officer (AO) completed the assessment under on after issuing multiple notices under Sections 142(1) and 143(2) and examining the details furnished by the assessee.
On , the issued Office Order No. 35 of 2026 promoting certain officers, including the PCIT who had jurisdiction over Rohatgi’s case, to the rank of CCIT. The very next day, on , the same officer issued a show-cause notice under Section 263 proposing to revise the assessment order, but signed the notice in his capacity as PCIT-12. Rohatgi obtained information under the RTI mechanism confirming that the officer had already joined his new posting as CCIT.
Arguments Presented
Assessee’s Contentions: Counsel for Rohatgi argued that the revision notice was void ab initio because the officer had ceased to hold the charge of PCIT upon his promotion and formal posting as CCIT. Without a specific order from the under authorising him to continue exercising PCIT’s powers, the notice was issued without lawful authority. On merits, the assessee contended that the AO had made adequate inquiries into the annual letting value (ALV) of the properties and had taken a that the properties were used for professional purposes, thus not liable to ALV under . Several properties had already been examined by the ITAT in earlier years, and the PCIT had not conducted any independent inquiry to demonstrate error.
Revenue’s Stand: The CIT-DR supported the revision order, submitting that the assessment order was because the AO had not properly verified the ALV of the properties.
Legal Analysis
The Tribunal first addressed the jurisdictional issue. It noted that distinguishes between a Chief Commissioner () and a Commissioner/Principal Commissioner (). While Section 263 empowers a CCIT to exercise , the officer in this case had issued the notice in the capacity of PCIT, not CCIT. The Bench observed that “when a statute requires a thing to be done in a certain manner, it shall be done in that manner alone,” citing the decision in CIT v. SPL’s Siddhartha Ltd. (345 ITR 223) and the ’s judgment in .
The Tribunal also relied on the ’s decision in Ghanshyam K. Khabrani v. ACIT (346 ITR 443) for the principle that the satisfaction mandated by a particular authority cannot be substituted by another. Since the ’s Office Order No. 35 of 2026 stated that promoted officers “shall continue to hold the charge of the post, which they were holding before promotion, till their formal posting is ordered,” the moment formal posting was ordered, the officer’s charge as PCIT ceased. Consequently, the notice issued after that date was .
On the merits, the Tribunal found that the AO had conducted specific inquiries regarding the properties, their usage, and the treatment under the head “income from house property.” The assessee had furnished all relevant details. The PCIT had not pointed out what further inquiries ought to have been made or brought any material to show that the AO’s view was not plausible. Referring to , the Bench held that the provision deems an order erroneous only when no inquiry whatsoever has been conducted. In this case, the AO had made inquiries and taken a possible view, which could not be revised merely on a .
Key Observations
“In view of the above factual matrix, the impugned notice was . There is no doubt that section 263 of the Act empowers the CC to exercise the powers under this section. However, in that case the notice must be issued by the authority in the capacity of CCIT and not in the capacity of PCIT.”
“If a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or in compliance with some higher authorities’ instruction, then it will be a case of altogether.”
“The PCIT has not suggested the basis of the inquiry or verification to be carried out by the AO, the order passed by the AO cannot be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue.”
Court’s Decision
The ITAT allowed Rohatgi’s appeal on both jurisdictional and merits grounds. It quashed the revision order passed under Section 263, holding that the notice was invalid for lack of jurisdiction and that the AO’s order was neither erroneous nor prejudicial to the interests of the Revenue. The Tribunal observed that the PCIT had failed to conduct any independent inquiry and had merely disagreed with the AO’s , which is not a valid ground for revision. The decision reinforces the principle that statutory powers must be exercised strictly in accordance with the law and that revisional authorities cannot substitute their opinion without demonstrating actual error.
