Kerala High Court Upholds Commissioner’s Revisional Powers Under Income Tax Act

Court Affirms Justification of Revisional Jurisdiction Due to Lack of Enquiry in Assessment Order

In a significant ruling, the Kerala High Court has upheld the revisional powers of the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961. The Division Bench, comprising Justices A. Muhamed Mustaque and Harisankar V. Menon, delivered the judgment on October 21, 2025, in the case of Sterling Farm Research And Services Pvt. Ltd. v. Commissioner of Income Tax. The court addressed the issue of whether the assessment order, which was deemed erroneous and prejudicial to the interests of the revenue, warranted the exercise of revisional jurisdiction.

The case involved Sterling Farm Research And Services Pvt. Ltd., which had declared the sale of its 'Test House Division' as a 'slump sale' under Section 50B of the Income Tax Act for the assessment year 2016-17. The initial assessment was completed under Section 143(3) of the Act, but the Commissioner later issued a notice under Section 263, proposing to set aside the order due to insufficient enquiry into whether the transaction should have been treated as a 'slump sale' or as a short-term capital gain under Section 50.

The court reiterated the principles laid down by the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, Kerala State, highlighting the twin conditions necessary for invoking Section 263: the assessment order must be erroneous and prejudicial to the revenue's interest. The Bench noted that the lack of adjudication by the assessing officer on the critical aspects of the transaction justified the Commissioner’s intervention.

During the proceedings, the appellant contended that the original assessment had been thorough, referencing the documents submitted and verified. However, the court found that the assessment order failed to address the statutory provisions adequately, thus supporting the Commissioner’s decision to invoke Section 263.

The ruling underscores the necessity for thorough and detailed assessment orders, particularly when dealing with complex tax provisions. It also emphasizes the appellate and assessing authorities' responsibilities to consider the legality of contentions in line with established legal principles, even after revisional directions.

The judgment is a reminder of the stringent scrutiny required in tax assessments and the legal recourses available when procedural inadequacies are identified.

Bottom Line:

Income Tax Act - Section 263 - Revisional powers of Commissioner - Exercise of jurisdiction under Section 263 justified when assessment order is found to be erroneous and prejudicial to the interest of revenue due to lack of enquiry into critical aspects by assessing authority.

Statutory provision(s): Income Tax Act, 1961 Section 263, Section 50B, Section 50, Section 143(3).

Sterling Farm Research And Services Pvt. Ltd. v. Commissioner of Income Tax, (Kerala)(DB) : Law Finder Doc Id # 2796896