Assessing officer cannot assume the power of CIT and recommend revision of assessment order

The assessee is a foreign company registered in Sweden and has filed its return of Income declaring nil Income for the A.Y. 2012-13. The assessee claimed the receipts as not chargeable to tax by virtue of Article 12 of DTAA between India and Sweden.
The assessment was completed by the Assessing officer under section 143(3) of the Act wherein the assessing officer accepted the return filed by the Assessee. However, thereafter, the Assessing officer sent a proposal to Commissioner of Income Tax “CIT” to exercise the revisional powers for revision of the order passed by him and basis which the CIT carried out the revision.
During the course of revision proceedings, the CIT found that the assessee has provided IT support, internet connectivity, global service desk, and other IT communication services to Indian entities and thus opined rendered services to be in the nature of Royalty.
The CIT held the assessment order to be erroneous and prejudicial to the interests of revenue. He, therefore, set aside the same and remitted the matter to the AO for treating the amount received from Indian entity as “Royalty‟ chargeable to tax u/s 9(1)(vi) of the Act. Aggrieved with the order of CIT, the Assessee filed an appeal before the Hon’ble ITAT.

The Commissioner may call for and examine the record of any proceedings under this Act, and if he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue i.e., CIT should himself examine the record and shall decide if the order is erroneous/prejudicial to the revenue.

Section 263 empowers the CIT with revisionary powers of an order suo moto based on the record and his judgment and it should not be on the basis of the AO sending a proposal to the CIT.
The Hon’ble ITAT further held that the revision has been initiated merely on the basis of proposal sent by the AO, it became a case of jurisdiction deficit resulting into vitiating the impugned order.
• Further, if the AO was of the opinion that the order is prejudicial to the interest of revenue, the AO has ample power to either reassess the earlier assessment in terms of section 147 or carry out rectification u/s 154 of the Act.

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