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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Principal Commissioner of Income Tax-12, Mumbai dated 13/03/2020 passed under section 263 of the Income Tax Act, 1961 [in short ‘the Act’], for the assessment year 2015-16.
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This appeal is time barred by 33 days. The assessee has filed an application seeking condonation of delay in filing of the appeal. The delay in filing of appeal has been attributed to the unprecedented situation caused by COVID-19 Pandemic. The Hon'ble Apex Court taking suo-motu cognisance of the hardship caused by the COVID-19 Pandemic to the litigants extended the period of limitation under General Law of Limitation and under Special Laws [Re: Cognisance for Extension of Limitation, 117 taxamann.com 66]. The assessee has filed present appeal within extended period of limitation, hence, there is no delay in filing of the present appeal.
Shri Vijay Mehta appearing on behalf of the assessee submitted that the PCIT had erred in assuming revision jurisdiction under section 263 of the Act. The ld.Authorized Representative of the assessee pointed that a perusal of the impugned order would show that the PCIT invoked his revisional powers under section 263 of the Act on the proposal Received from the Assessing Officer. The section mandates that the CIT/PCIT can exercise powers under section 263 of the Act on examination of records of any proceedings under the Act and if considered necessary pass the order therein. The language of the section makes it obvious that the PCIT has to form his opinion after examination of the records and it is not on proposal from any other authority under the Act on the basis of which the CIT/PCIT can assume revisional powers under section 263 of the Act. In support of his submission, the ld.Authorized Representative of the assessee placed reliance on the decision in the case Alfa Laval Lund AB. vs. CIT(IT) reported as 215 TTJ (Pune) 814.
3.1 The ld.Authorized Representative of the assessee further submitted that the PCIT has erred in exercising revisional powers on an issue which was
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decided by the CIT(A) in appellate proceedings much prior to issuance of notice under section 263 of the Act. Hence, on the date of exercise of revisional powers, the order of Assessing Officer had merged with the order of CIT(A). The ld.Authorized Representative of the assessee in support of his submissions referred to Explanation -1(c) to section 263 of the Act. The ld.Authorized Representative of the assessee pointed that the CIT(A) passed the order on 19/09/2019 and the notice under section 263 of the Act was issued on 21/02/2020 i.e. much after passing of the order by the CIT(A) .
Per contra, Shri Ajay Chandra representing the Department vehemently defended the impugned order. The ld.Departmental Representative submitted that the PCIT after receiving proposal from Assessing Officer examined the issue thereafter, issued notice under section 263 of the Act . The ld.Departmental Representative further submitted that the issue which was subject matter of revision under section 263 of the Act was never raised by assessee in grounds before the CIT(A). Therefore, exception provided in Explanation -1(c) would not apply in the present case.
We have heard the submissions made by rival sides and have examined the orders of authorities below. The assessee in appeal has raised as many as eight grounds including sub-grounds. The effective ground which is subject matter of appeal is ground No.1, the same is reproduced herein under:-
“1.The appellant submits that the order passed by the learned Principal Commissioner of Income-tax- 12, Mumbai, (hereinafter referred to as "PCIT") under section 263 of the Income-tax Act, 1961 (the Act), setting aside the assessment order passed under section 143(3) of the Act is illegal, null and void and bad in law and ought to be cancelled as the said assessment order was neither erroneous nor prejudicial to the interests of revenue.” The other grounds raised in the appeal are either argumentative or in support of ground No.1.
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The assessee has assailed the order of PCIT on the ground that PCIT has erred in exercising jurisdiction u/s 263 of the Act on the basis of proposal received from Assessing Office. A perusal of the impugned order shows that the PCIT has received proposal to initiate proceedings u/s 263 of the Act from Assessing Officer [DCIT-12(2)(2)] Mumbai vide letter dated 12/02/2020. After receipt of proposal the PCIT purportedly examined the relevant records and issued show cause notice u/s 263 of the Act. The mandate of section 263 is that it is the PCIT who has to call for the record and examine the same and if he considers necessary that order passed by the Assessing Officer is erroneous and in so far as prejudicial to the interest of Revenue, after giving opportunity of hearing to the assessee pass order enhancing or modifying the assessment or cancelling the assessment and directing fresh assessment. The requirement of the section is, it is the PCIT who has to call for the record and examine the same. The PCIT cannot exercise powers u/s 263 on the basis of proposal received from the Assessing Officer. The PCIT in para-4 of the impugned order has observed that, “After receipt of above proposal, for action u/s 263 of the Act, the same was considered by the undersigned and after examining the relevant records show cause notice u/s 263” was issued. This is not the intent of section. What has to be considered by the PCIT are the records not the proposal. The PCIT clearly erred in assuming jurisdiction u/s 263 of the Act on the basis of proposal received from the Assessing Officer. In the case of Alfa Laval Lund AB. Vs. CIT (supra) the Co-ordinate Bench of the Tribunal in similar case where the PCIT exercised revisional power on proposal received from Assessing Officer quashed order u/s 263 by observing as under:-
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“3. We have heard both the sides through Virtual Court and gone through the relevant material on record. It can be seen from para 4 of the ld. CIT‟s order that: “A proposal for revision u/s 263 of the IT Act, 1961 was received from DCIT(IT)-1, Pune through the Jt.CIT(IT), Pune vide letter No. Pn/Jt.CIT(IT)/263/2016-17/61 dated 23.05.2016”. It is thus manifest that the edifice of the revision in the extant case has been laid on the bedrock of receipt of the proposal from the AO. At this stage, it would be worthwhile to have a glance at sub-section (1) of section 263 of the Act, which runs as under:- “The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.” 4. Sub-section (1) of section 263 of the Act is an enabling provision which confers jurisdiction on the CIT to revise an assessment order which he considers erroneous and prejudicial to the interests of revenue. The process of revision u/s 263 of the Act initiates only when the CIT calls for and examines the record of any proceeding under this Act and considers that any order passed by the AO is erroneous and prejudicial to the interests of the revenue. The twin conditions of – (i) the CIT calling for and examining the record; succeeded by (ii) his considering the assessment order as erroneous etc. – are sine qua non for the exercise of power under this section. The use of the word `and’ between the expression `call for and examine the record ….‟ and the expression `if he considers that any order … is erroneous …‟ abundantly demonstrates that both these conditions must be cumulatively fulfilled by the CIT and in the same order, that is, the first followed by the second. In other words, the kicking in point for invoking jurisdiction u/s 263 is calling for and examining the record of any proceedings under the Act by the CIT leading him to consider the assessment order erroneous etc. A communication from the AO is not `the record of any proceedings under this Act’. To put it simply, the consideration that the assessment order is erroneous and prejudicial to the interests of the revenue should flow from and be the consequence of his examination of the record of proceedings. If such a consideration is not preceded by the examination of record of the proceedings under the Act, the condition for revision does not get magnetized. 5. It is trite that a power which vests exclusively in one authority, can’t be invoked or cause to be invoked by another, either directly or indirectly. Section 263 of the Act confers power on the CIT to revise an assessment order, subject to certain conditions. Instantly, we are confronted with a situation in which the revision was initiated on the basis of the AO sending a proposal to the CIT and not on the CIT suo motu calling for and examining the record of the assessment proceedings and thereafter considering the assessment order erroneous and prejudicial to the interests of the revenue. The AO recommending a revision to the CIT has no statutory sanction and is a course of action unknown to the law. If AO, after passing an assessment order, finds something amiss in it to the detriment of the Revenue, he has ample power to either reassess the earlier assessment in terms of section 147 or carry out rectification u/s 154 of the Act. He can‟t usurp the power of the CIT and recommend a revision. No overlapping of powers of the authorities under the Act can be permitted. As the revision proceedings in this case have triggered with the AO sending a proposal to the ld. CIT and then the latter passing the order u/s 263 of the Act on the basis of such a proposal, we
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hold that it became a case of jurisdiction deficit resulting into vitiating the impugned order. Without going into the merits of the case, we quash the impugned order on this legal issue itself.” [Emphasized by us] Thus, in the facts of instant case we are of considered view that the pre- condition as set out in Section 263(1) of the Act for exercising jurisdiction under section 263 of the Act is not satisfied, therefore, the entire proceedings under section 263 are vitiated. Hence, liable to be quashed.
The second argument of the ld.Authorized Representative of the assessee is that the issue which was raised in the proceedings under section 263 of the Act was considered by the CIT(A) in appellate proceedings. We find that the solitary issue on which addition was made in assessment proceedings was with respect to disallowance made under section 14A of the Act. The assessee had earned dividend income of Rs.8.20 cores during the period relevant to assessment year under appeal and claimed exempt under section 10(34) of the Act. The assessee made suo motu disallowance of Rs.39,02,754/- under section 14A of the Act for earning exempt income. The Assessing Officer in assessment proceedings enhanced disallowance under Rule 8D(2)(iii) to Rs.1,82,47,992/-. The assessee carried the issue in appeal before CIT(A), inter-alia assailing the enhancement of disallowance under section 14A of the Act. While computing disallowance the Assessing Officer excluded the investment held by assessee as stock-in-trade. The First Appellate Authority while adjudicating the issue observed that contention of assessee that investment in subsidiaries held as stock-in-trade by the assessee be excluded from the total value of investments, is contrary to the law laid down by Hon'ble Supreme Court of India in the case of Maxopp Investment Ltd. vs. CIT, 402 ITR 640. Although the issue was not raised by the
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assessee in appeal, however, there was specific finding by the CIT(A) in line with the law expounded by Hon’ble Apex Court. The CIT(A) finally decided the issue following the order of Special Bench in the case of Vireet Investment Pvt. Ltd. 58 ITR (Trib) 313(Del-SB) holding only dividend yielding investments be considered for computing disallowance under Rule 8D(2)(iii). Since, the issue which was subsequently taken up by the PCIT in proceedings under section 263 of the Act was adjudicated in the First Appellate proceedings the Explanation - 1(c) to section 263 gets attracted. Once, the issue has been considered and decided in appeal the same cannot be subject matter of revision proceedings.
For the reasons recorded above, we find that the PCIT in the instant case has wrongly assumed jurisdiction under section 263 of the Act. Consequently, impugned order is quashed and appeal by assessee is allowed.
Order pronounced in the open court on Friday the 10th day of June, 2022.
Sd/- Sd/- ( GAGAN GOYAL ) (VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER मुंबई/ Mumbai, �दनांक/Dated 10/06/2022 Vm, Sr. PS(O/S)
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��त�ल�प अ�े�षतCopy of the Order forwarded to :
अपीलाथ�/The Appellant , 2. ��तवाद�/ The Respondent. 3. आयकर आयु�त(अ)/ The CIT(A)- 4. आयकर आयु�त CIT 5. �वभागीय ��त�न�ध, आय.अपी.अ�ध., मुबंई/DR, ITAT, Mumbai 6. गाड� फाइल/Guard file.
BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai