Kerala High Court: Section 263 Under IT Can’t Be Comprised as Closed Remand

The Kerala High Court addressed an income tax appeal for the nature of an order passed by the Commissioner of Income Tax under section 263 of the Income Tax Act.

The taxpayer, Malabar Institute of Medical Sciences Ltd., contested the Income Tax Appellate Tribunal’s (ITAT) decision, which had dismissed their appeal against a revised assessment order.

It was ruled by the ITAT that the taxpayer must have separately contested the section 263 order, which had remanded the assessment for fresh consideration before appealing the forthcoming assessment.

The HC does not agree, citing that the section 263 order comprises an open remand, not a closed one, and hence a separate contest was unnecessary.

The court outlined that the order of the Commissioner u/s 263, which discovered the original assessment incorrect and prejudicial to revenue interest, asked for a fresh assessment on merits.

The HC claimed that the ITAT made a mistake in insisting on a separate challenge to the section 263 order, particularly since the Commissioner of Income Tax (Appeals) had already addressed the revised assessment order on its merits.

It was concluded by the court that the ITAT must have also acknowledged the plea on its merits instead of dismissing the same for the absence of a separate challenge to the section 263 order. Thereafter, the HC set aside the order of ITAT, restored the appeal, and directed the tribunal to reconsider the case on its merits.

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The court mentioned that the taxpayer did not need to contest the section 263 order independently since the same was not a closed remand, and permitted the plea replying the questions of law in the taxpayers favor.