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Facts
The assessee filed a return of income which was processed. Subsequently, the assessment was reopened under Section 147 to examine the investment in an immovable property. The AO completed the assessment without proposing any additions.
Held
The Tribunal held that the PCIT's revisionary order under Section 263 was invalid because the issue of capital gains on mutual fund redemption was not part of the original reopening notice under Section 147. The AO exceeded jurisdiction by considering an issue not subject to reopening.
Key Issues
Whether the PCIT could revise an assessment order under Section 263 to include an issue not forming the basis of the original reopening under Section 147.
Sections Cited
263, 147, 143(1), 148, 147
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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, VP & SHRI NARENDRA KUMAR BILLAIYA, AM Shri Himanshu Gandhi
O R D E R Per Saktijit Dey, VP:
1. 1. Present appeal has been filed by the assessee assailing the order dated 29.03.2025 passed under Section 263 of the Income Tax Act, 1961 (hereinafter called the ‘Act’) by learned Principal Commissioner of Income Tax (PCIT), Mumbai pertaining to Assessment Year (AY) 2013-14.
2. Briefly stated, the assessee is a resident individual. For the assessment year under dispute, the assessee had filed his return of income on 31.07.2013 declaring income of Rs.2,86,46,710/-. The return of income so filed by the assessee was processed u/s. 143(1) of the Act. Subsequently, scrutiny assessment proceeding was initiated in case of assessee’s wife to verify payment of Rs.6,00,00,000/- crores to a developer towards purchase of an immovable property. While completing the assessment in case of assessee’s wife, the AO having jurisdiction over her passed on some information and details to the AO having jurisdiction over the assessee. Based on some information, assessment in case of the assessee was reopened u/s. 147 of the Act. The reopening of assessment was because of alleged escapement of income of more than Rs.1,00,000/-, being the amount invested by the assessee towards purchase of the immovable property. In response to notice u/s. 148 of the Act, the assessee participated in the assessment proceeding.
During the assessment proceeding, the AO called upon the assessee to furnish the necessary details regarding investment made in immovable property. In response to the query raised by the AO, the assessee furnished the necessary details before the AO. After verifying the details and making necessary enquiry, the AO was satisfied with the source of investment, hence, he did not propose any variance to the income offered by the assessee. Accordingly, he completed the assessment vide order dated 07.03.2023. Post completion of assessment, learned PCIT called for and examined the assessment records and upon such examination was of the view that the assessment order is erroneous and prejudicial to the interest of the Revenue as the AO has failed to assess the capital gain of Rs.39,08,787/-arising on redemption of Kotak Mahindra Mutual Fund (in short ‘KMMF’). Accordingly, he issued a show cause notice to the assessee to explain why the assessment order should not be revised. In response to the show cause notice, the assessee filed his submissions objecting to the assumption of jurisdiction u/s. 263 of the Act on two grounds: - firstly, the assessee submitted that the assessee had invested in KMMF Dividend Investment Plan. Hence, the dividend declared by the mutual fund was reinvested in same mutual fund and Net Asset Value (NAV) remained same. It was further submitted that the dividend received from mutual fund in the impugned assessment year was exempt from taxation.
Without prejudice, the assessee further submitted that since the AO while completing the reassessment has not made any addition on the issue, on which, reopening of assessment was made, he had no jurisdiction to make any other addition. The submissions made by the assessee, however, did not find favour with learned PCIT. Ultimately, he passed an order u/s. 263 of the Act setting aside the assessment order with a direction to the AO to examine the issue and consider it for addition in the fresh assessment.
We have considered rival contentions and perused the materials on record. On going through the reasons recorded for reopening of assessment, copy of which is placed in the paper book, it is observed that the assessment was reopened for considering a single issue of investment made by the assessee in purchasing immovable property. In course of assessment proceeding, the assessee furnished the requisite details and being satisfied with the source of investment, the AO completed the assessment without proposing any variation. Whereas, the revisionary authority has found the assessment order to be erroneous and prejudicial to the interest of Revenue as the AO has failed to consider the taxability of capital gain stated to have arisen out of redemption of KMMF.
Thus, the issue lies within a narrow compass, whether the assessment order could have been considered as erroneous and prejudicial to the interest of revenue for non-consideration of chargeability of capital gain to tax, when the issue on which, the reopening of assessment was made was not considered for addition. In our view, when the issue on which, the AO reopened the assessment was not considered for addition, the AO did not have jurisdiction to consider any other addition which was not subject matter of reopening. That jurisdiction could have been exercised by the AO by initiating a fresh proceeding u/s. 147 of the Act. Thus, when the AO did not have jurisdiction to consider the issue of addition of capital gain arising out of redemption of mutual fund because it was not subject matter of reopening u/s. 147 of the Act, for non-consideration of such issue, the assessment order passed cannot be branded as erroneous and prejudicial to the interest of Revenue. Following judicial precedents cited by leaned counsel of the assessee support the aforesaid view: i. CIT vs. Software Consultants (2012) 21 taxmann.com 155 (Delhi HC) ii. Sipura Developers P. Ltd. vs. PCIT (2024) 168 taxmann.com 543 (Delhi HC) iii. PCIT vs. Prosperous Buildcon P. Ltd. (2023) 156 taxmann.com 446 (Delhi HC) iv. Aishwarya Rai Bachhan vs. PCIT (2022) 135 taxmann.com 335 (Mum. Trib) v. Ashok Kumar vs. PCIT (2024) 164 taxmann.com 115 (Delhi Trib) vi. Md. Salim Abdul Hakim Khan vs. Ito vii. Vikram Developers P. Ltd. vs. ITO (2024) 165 taxmann.com 266 (Bom. HC)
Thus, following the ratio laid down in these decisions, we hold that exercise of jurisdiction u/s. 263 of the Act in the facts of the present appeal is in valid. Accordingly, we quash the impugned order passed u/s. 263 of the Act and restore the order of assessment.
In the result, appeal is allowed.
Order pronounced in the open court on 31/07/2025..