Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri Rajesh Kumar & Shri Sonjoy Sarma]
Per Rajesh Kumar, AM:
This is the appeal preferred by the assessee against the order of the Ld. Principal Commissioner of Income Tax-1, Kolkata (hereinafter referred to as the Ld. PCIT”] passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act) dated 23.03.2022 for the AY 2014-15.
The assessee has raised following grounds of appeal:
For that the order dated 23.03.2022 passed u/s 263 by the Ld. Principal CIT is barred by the law of limitation and liable to be quashed.
2 I.T.A. No. 278/Kol/2022 Assessment Year: 2014-15 M/s K. M . Khadim & Co. 2. (a)For that on the facts and in the circumstances of the case, the order passed by the Ld. Principal CIT u/s 263 of the Act is bad in law and is liable to be quashed. (b) For that on the facts and in the circumstances of the case the Ld. Principal CIT was not justified in initiating proceedings u/s 263. 3. For that the Ld. Principal CIT erred in exercising the power of revision for the purpose of directing the A.O', to hold another investigation when the A.O. had complied with the directions of the predecessor Principal CIT, Kolkata - 14, Kolkata in the preceding order u/s 263 passed on 20.03,2019. 4. For that the Ld. Principal CIT ought to have appreciated that requisite enquiries were done by the A.O. while passing order u/s. 263/143(3) dated 23.12.2019, thereby ousting jurisdiction to invoke section 263 once again.
(a) For that the Ld. Principal CIT passing the impugned order erred in holding that there was difference of loan, amount of Rs. 11,11,00,000/- between the details as per party- wise brokerage bill details and the fond arranged by the brokers and, as such, the said amount was required to be treated as unexplained cash credit. (b) For that the Ld. POT erred in holding that there was error made by the A.O. in the computation part of the assessment order dated 23.12.2019 to the tune of Rs.27,000/-. 6. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal.
In the various grounds of appeal, the assessee has challenged the order passed by the LD. PCIT u/s 263 of the Act in the second round on the ground that the issue raised stood examined by the AO in the first round and therefore the jurisdiction invoked u/s 263 of the Act and the consequent order passed by Ld. PCIT are nullity and bad in law.
Facts in brief are that the assessment was framed in the instant case u/s 143(3) of the Act vide order dated 26.12.2016 determining total income at Rs. Nil. Thereafter the Ld. PCIT invoked revisionary jurisdiction u/s 263 of the Act on two issues (a) non-verification of the genuineness of the brokerage expenditure incurred on new loans and renewal of loans taken for the purpose of business and (b) interest of free advances given by the assessee. The assessment was completed u/s 143(3) read with 263 of the Act vide order dated 23.12.2019 determining at Rs. 17,70,850/- thereby raising total demand of Rs. 5,47,192/-. This was the first round of 263 proceedings.
3 I.T.A. No. 278/Kol/2022 Assessment Year: 2014-15 M/s K. M . Khadim & Co. The AO in the said assessment proceedings( first round) examined these issues in detail as discussed in para no. 4 to 16 of the assessment order passed u/s 143(3) read with Section 263 of the Act and made addition on account of disallowance of interest of Rs. 14,34,726/- being the proportionate interest relating to advances given by the assessee out of borrowed funds as the assessee was not having its own funds and also towards brokerage expenses of Rs. 3,36,122/- thereby making addition of Rs. 17,17,848/-. The Ld. PCIT again exercised jurisdiction u/s 263 of the Act in the second innings on the ground that the AO has not examined the persons/documents from whom loans were raised as the assessee did not furnish any details/evidences qua the said raising of loan by issuing notice u/s 263 of the Act dated 21.02.2022 as to why the provisions of section 263 should not be invoked and assessment should not be modified /revised which was replied by the assessee and the said reply of the assessee is reproduced in para 4 of the revisionary order wherein the assessee submitted that the assessee has duly filed all the documents/evidences as sought by the AO and the AO has also conducted enquiry and verified these transactions by issuing notice u/s 133(6) to the brokers and only thereafter the assessment was framed. However the reply of the assessee did not find any merit with the ld. PCIT and he revised and set aside the order passed by the AO dated 23.12.2019 u/s 143(3) read with Section 263 of the Act.
The Ld. Counsel for the assessee vehemently submitted before the Bench that the exercise of jurisdiction by Ld. PCIT is hopelessly barred by limitation as per the provision of Section 263(2) of the Act on the ground that the order was passed in the first round u/s 143(3)/263 of the Act dated 23.12.2019 which was passed pursuant to the directions by the Ld. PCIT in the order passed u/s 263 of the Act dated 20.03.2019. The Ld. A.R. submitted that the said exercise of revisionary power by the ld. PCIT is invalid and bad in law as the AO has very limited power to examine the issues in the set aside proceedings to the extent as directed by the LD. PCIT and does not have the power to exercise the unfettered jurisdiction to make the additions. The Ld. A.R. in defense of his arguments relied on the series of decisions emphasizing the
4 I.T.A. No. 278/Kol/2022 Assessment Year: 2014-15 M/s K. M . Khadim & Co. issue that the AO can exercise power in the set aside proceedings/ remand proceedings only to the extent as directed by the Ld. PCIT/authorities concerned in its order. The Ld. A.R relied on the series of decisions namely in defense of his arguments:
i) Basudeo Prasad Agarwalla vs. ITO & Ors 180 ITR 388 (Cal)
ii) CIT vs. V. Hope Textiles Ltd. 225 ITR 993 (MP)
iii) CIT vs. Lal Chand Agarwal 259 ITR 497 (Raj.)
iv) S.P. Kocher vs. ITO 145 ITR 255 (All.)
The Ld. A.R. therefore argued that the exercise of jurisdiction by the Ld. PCIT in second round treating the assessment order passed pursuant to the direction by the Ld. PCIT in the first round in the order passed u/s 263 of the Act is contrary to the provisions of the Act. The ld AR contended that the order passed pursuant to first order u/s 263 of the Act in the first innings is neither erroneous nor prejudicial to the interest of the revenue.At the most the Ld. PCIT could have revised the assessment framed u/s 143(3) dated 26.12.2016 in which the AO has unlimited powers to examine the issues which could be treated an order to be erroneous and prejudicial to the interest of the revenue but not the order passed u/s 143(3) read with Section 263 of the Act dated 23.12.2019. The ld. AR argued that, in any case, the order passed u/s 143(3) dated 26.12.2016 is also barred by limitation so the power of the Ld. PCIT can also not to be exercised by relying on the following decisions:
(i) CIT –vs.- Alagendran Finance Limited (2007) 293 ITR 1 (SC); (ii) CIT –vs.- ICICI Bank Limited (2012) 343 ITR 74 (Bom.).
The Ld. D.R. on the other hand relied heavily on the order of LD. PCIT by submitting that the assessee is not put to any loss by the exercise of jurisdiction as the assessee would be given sufficient time and enough opportunity to present its case, therefore the appeal of the assessee may kindly be dismissed.
5 I.T.A. No. 278/Kol/2022 Assessment Year: 2014-15 M/s K. M . Khadim & Co. 7. After hearing the rival contention and perusing the material on record including the impugned order passed by the Ld. PCIT and also the order passed by the Ld. PCIT and AO in the first round of 263, we find merit in the contentions of the assessee that in the set aside proceedings, the AO’s power are confined to the issues which are specifically restored to the file of AO by the Ld. PCIT and AO has no jurisdiction on the issues which are not restored to him in the first round of set aside proceedings. We note that pursuant to revisionary order u/s 263 of the Act dated 20.03.2019, the AO has examined all the issues and made additions after calling for necessary information from the assessee as well as from the third parties u/s 133(6) of the Act and made additions accordingly. We find that the AO has elaborately discussed the issue in para 4 to 16 of the order dated 23.12.2019 passed u/s 143(3) r.w.s. 263 of the Act. Therefore we are of that view the power has invalidly been exercised by Ld. PCIT to set aside the order framed u/s 143(3) read with Section 263 of the Act dated 23.12.2019 which has been validly passed by the AO and is neither erroneous nor prejudicial to the interest of the revenue. We have perused several decisions as cited before us which stated above. In the case of Basudeo Prasad Agarwalla (supra) the Hon’ble Calcutta High Court has held that if the order of remand is open and the authorities concerned, after remand, can exercise the jurisdiction in accordance with law, there is nothing for the court to regulate such action; but at the same time, this court observes that if the scope of remand is limited, after remand, the authorities cannot enlarge the same and make an assessment beyond the scope of the order of remand. The Court observed that the authorities concerned, after remand, are certainly entitled to proceed in accordance with law, but in a limited manner,if there is any order of the appellate authority permitting the authorities concerned to proceed in the light of the directions made therein. In the case of V. Hope Textiles Ltd. (supra) wherein the Hon’ble Madhya Pradesh High Court has held that while appellate authority remanding the case can give directions and lay down limit for the enquiry to be made by the lower Court. When such a direction is made and limits are laid down, the power and jurisdiction of the lower Court to deal with the case, after remand, depend on the specifications of the remand order and the lower Court has no
6 I.T.A. No. 278/Kol/2022 Assessment Year: 2014-15 M/s K. M . Khadim & Co. jurisdiction to enter into any question which falls outside this limit. Similar issue has been laid down in the case of Lal Chand Agarwal (supra) by the Hon’ble Rajasthan High Court and also by the Hon’ble Allahabad High Court in the case of S. P. Kochar (supra). In our considered opinion, assessment u/s 143(3) read with Section 263 dated 23.12.2019 was framed in accordance with directions by Ld. PCIT as contained in the order passed u/s 263 dated 20.03.2019 and accordingly the assessment so framed is neither erroneous nor prejudicial to the interest of the revenue. On this count alone, the invoking the jurisdiction u/s 263 of the Act bythe Ld. PCIT is wrong and cannot be sustained as the assessment framed pursuant to the order of ld PCIT u/s 263 of the Act is neither erroneous nor prejudicial to the interest of the revenue.This is the ratio which has been laid down by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd.v. Commissioner of Income-tax reported in [2000] 109 Taxman 66 (SC)/ [2000] 243 ITR 83 (SC) wherein it has been held that in order to invoke jurisdiction u/s 263 of the Act the order passed by the AO has to be erroneous as well as prejudicial to the interest of the revenue and thus satisfaction of both conditions is sine non quo and mandatory before invoking the jurisdiction u/s 263 of the Act. The Hon’ble Apex Court has held that even the non-satisfaction of one of the two conditions would not entitle the Ld. PCIT to exercise revisionary jurisdiction u/s 263 of the Act. On this limb of the arguments , the revisionary jurisdiction is held to be invalidly invoked and accordingly the order u/s 263 of the Act is quashed.
On the second limb of the argument that the LD. PCIT could have revised the assessment as framed u/s 143(3) dated 26.12.2016 which in our opinion is barred by limitation in terms of provisions of Section 263(2) of the Act. Considering the facts of the case vis a vis the and the provisions of section 263(2) of the Act and also the citations made by the ld. Counsel before us, we are of the considered view that it is the original assessment order passed under section 143(3) of the Act which could be considered as erroneous and prejudicial to the interest of the Revenue but not the assessment as framed in the set aside proceedings pursuant to ld. PCIT directions in the first round. In our opinion, the limitation runs from the end of the financial year in
7 I.T.A. No. 278/Kol/2022 Assessment Year: 2014-15 M/s K. M . Khadim & Co. which the original assessment under section 143(3) of the Act was framed, i.e. 26.12.2016 and the limitation period expired on 31.03.2019, whereas the ld. PCIT has set aside and revised the assessment order as framed u/s section 143(3) read with section 263 dated 23.12.2019 and consequently the revisionary jurisdiction of the ld. PCIT cannot be sustained. The case of the assessee finds force from the decision in the case of CIT –vs.- Alagendran Finance Limited (supra), wherein the Hon’ble Apex Court has held that the period of limitation has to run from the date of order of assessment and not from the date of order of reassessment, where the item/issue in respect of which order is revised under section 263 of the Act by the ld. PCIT is not the subject matter of reassessment proceedings. The facts before the Hon’ble Apex Court were that , the ld. PCIT had sought to revise the part of the order of assessment, which related the lease equalization fund. The reassessment proceeding was initiated and culminated under section 143(3) read with section 147 of the Act in which the issue of lease equalization fund was not the subject matter and the Hon’ble Court has, therefore, held that doctrine of merger did not apply in the case of this nature and the period of limitation commences from the date of original assessment and not from the date of reassessment since the latter had not anything to do to lease equalization fund and this was not a case where subject matter of assessment and subject matter of re- assessment were same. The Hon’ble Apex Court while passing the order has relied on the decision of Coordinate Bench in the case of CIT –vs.- Arbuda Mills (1998) 231 ITR 50 (SC). Similar ratio as laid down by the Hon’ble Bombay High Court in the case of CIT –vs,- ICICI Bank Limited(Supra) wherein the Hon’ble Bombay High Court has held that where the jurisdiction under section 263(1) of the Act is sought to be exercised with reference to an issue which is covered by the original order of assessment under section 143(3) of the Act and which does not form the subject matter of the reassessment, the limitation must necessarily begin to run from the date of order passed under section 143(3) by observing and holding as under:-
“Held, dismissing the appeal, that neither in the first reassessment nor in the second reassessment was any issue raised or decided in respect of the deductions under section 36(1)(vii), (viia) and the foreign exchange rate
8 I.T.A. No. 278/Kol/2022 Assessment Year: 2014-15 M/s K. M . Khadim & Co. difference. The order of the Commissioner under section 263(2) had not been passed with reference to any issue which had been decided either in the order of the first reassessment or in the order of second reassessment but sought to revise issues decided in the first order of assessment passed under section 143(3) on March 10, 1999, which continued to hold the field as regards the three issues in question. The order dated March 10, 1999, did not merge with the orders of reassessment in respect of issues which did not form the subject matter of the reassessment. Consequently, Explanation 3 to section 147 would not alter that position. Explanation 3 only enables the Assessing Officer, once an assessment is reopened, to assess or reassess the income in respect of any issue, even an issue in respect of which no reasons were indicated in the notice under section 148(2). This, however, will not obviate the bar of limitation under section 263(2). The invocation of the jurisdiction under section 263(2) was barred by limitation”.
In the instant case before us also the issue on which the ld. PCIT proposed the revision of order framed u/s 143(3) r.w.s. 263 of the Act dated 23.12.2019, issue which was directed by the ld PCIT in the order u/s 263 of the Act dated 23.03.2022 was not the subject matter of revisionary proceedings in the first round. Therefore, the period of limitation has to run from the date of assessment as framed under section 143(3) dated 26.12.2016 i.e. from the end of financial year 31.3.2017. In view of this, we incline to hold that the revisionary jurisdiction exercised by the ld. PCIT is hopelessly barred by limitation. In view of the ratio laid down by the Hon’ble Courts as discussed herein above, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 21st December, 2022
Sd/- Sd/- (Sonjoy Sarma /संजय शमा�) (Rajesh Kumar/राजेश कुमार) Judicial Member/�या�यक सद�य Accountant Member/लेखा सद�य Dated: 21st December, 2022 SB, Sr. PS
9 I.T.A. No. 278/Kol/2022 Assessment Year: 2014-15 M/s K. M . Khadim & Co.
Copy of the order forwarded to: 1. Appellant- M/s K. M .Khadim& Co., C/o Subash Agarwal & Associates, Advocates, Siddha Gibson, 1, Gibson Lane, Suite 213, 2nd Floor, Kolkata- 700069 2. Respondent – LD. PCIT-1, Kolkata 3. DR, Kolkata Benches, Kolkata (sent through e-mail)