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Facts
The assessee's original assessment for AY 2014-15 was completed under Section 143(3) in 2016. A reassessment under Section 147 for fictitious currency derivative losses was completed in 2022. The PCIT initiated revisionary proceedings under Section 263, setting aside the reassessment order on an issue (mismatch in professional fees) that was not the subject of the Section 147 reassessment.
Held
The Tribunal held that the PCIT's order under Section 263 was time-barred for the issue of professional fees, as the limitation period of two years under Section 263(2) should be counted from the original assessment order under Section 143(3) (2016), not the subsequent reassessment order under Section 147 (2022), since the issue was not part of the reassessment. Relying on Supreme Court precedent in Alagendran Finance Ltd., the Tribunal found the PCIT's invocation of jurisdiction to be without jurisdiction and a nullity.
Key Issues
Whether the PCIT can exercise revisionary jurisdiction under Section 263 on an issue not covered by reassessment proceedings, if the limitation period from the original assessment has expired.
Sections Cited
263, 263(1), 263(2), 147, 143(3), 144B, 148, 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: C, NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI SUDHIR PAREEK
ORDER PER SHAMIM YAHYA, AM : These appeals by the Assessee are directed against the respective orders of the Ld. PCIT, Rohtak dated 29.03.2024 & 28.3.2024 respectively passed under Section 263 of the Act pertaining to assessment years 2014-15 & 2015-16. Since common grounds have been raised in these appeals, hence, we are dealing with the facts of the assessment year 2014-15, being lead case and the decision thereof will apply mutatis mutandis to other assessment year i.e. 2015-16 as well. The grounds raised in assessment year 2014-15 read as under:-
That the Ld. PCIT has erred on facts and in law in passing the order under Section 263 holding that the assessment made by the AO under Section 147 read with Section 143(3) of the Act, is erroneous as well as prejudicial to the interest of the revenue.
That on the facts and circumstances of the case, the impugned order passed by Ld. Pr. CIT is barred by the limitation under Section 263(2) of the Act.
3. That on the facts and circumstances of the case, the Ld. Pr. CIT has erred in holding that the AO has failed to make enquiries on payment of professional fees without appreciation that all the relevant documents / details were duly examined in the course of assessment proceedings under Section 143(3) and also not part of reopening of assessment.
4. That the appellant craves leave to add, amend, modify, rescind, supplement or alter any of the grounds of appeal before the appeal is finally adjudicated upon.
2. The brief facts of the case are that the assessee had filed return of income on 29.09.2014 declaring total income of Rs.5,79,00,100/-. Further, assessment in this case was completed under Section 143(3) on 17.08.2016 by the then ACIT Hisar at an assessed income of Rs.5,81,00,100/- by making the following addition:- i. Addition amounting to Rs.2,00,000/- on account of disallowance of expenses.2.1 Later on, proceedings under Section 147 of the Income Tax Act, 1961 were initiated on the basis of credible information available with the department that the assessee company had booked fictitious losses in USE Currency Derivatives. In this case, the assessment under Section 147 read with Section 144B of the Act was completed by NaFAC on 30.3.2022 at an assessed income of Rs.6,11,82,420/- by making the following additions:-
(i) Addition amounting to Rs.30,21,882/- on account of sham transaction entered into by the assessee in currency derivatives.
(ii) Addition amounting to Rs.60,438/- on account of unexplained expenditure under Section 69C of the Act. 2.2 On perusal of assessment records, it has been gathered by the Ld. PCIT that during the year under consideration, as declared at Sr. No. 27(ii) of ITR, the assessee 'company' had paid an amount of Rs.7,36,321/- on account of professional / consultancy fees. Whereas perusal of Tax Audit Report (3CD) revealed that the assessee has paid an amount of Rs.21,17,597/- on account of professional / consultancy fees. Therefore, there is a mismatch of Rs.13,81,276/- (2117597- 736321) between the figures shown by the assessee in the ITR and Audit Report and the same is required to be taxed as per Section 69C of the Act. Thus, FAO has failed to bring to tax an amount of Rs.13,81,276/- (2117597-736321).
3. The Ld. PCIT observed that as per the provisions of Section 263, if an order is passed without proper enquiry it will be held as erroneous. He further observed that as the assessment order under Section 147 read with Section 144B of the Act by FAO was passed on 30.3.2022 without proper perusal and investigation of relevant information available on record, it appeared to be erroneous and prejudicial to the interest of revenue. Accordingly, a notice under Section 263 was issued on assessee, mentioning instances of failure on the part of the AO, in not making enquiry, as envisaged under the said provisions and assessee was requested to show cause as to why the assessment order under Section 147 of the act for AY 2014-15 passed on 30.3.2022 should not be revised by invoking the provisions of Section 263 of the Act. In response to the same, assessee filed its reply, but Ld. PCIT was not convinced with the said reply and concluded as under:- “Keeping in view facts and circumstances of the case as discussed above, it is observed that the AO had passed the order dated 30.3.2022 in casual manner without due diligence and without conducting proper enquiries. Therefore, the assessment completed under Section 147 read with Section 144B of the Act is erroneous in so far as it is prejudicial to the interest of the revenue in terms of provisions of Section 263 of the Act, especially in view of Explanation 2 inserted by the Finance Act, 2015 w.e.f. 01.06.2015. Accordingly, the assessment order passed by the AO on 30.3.2022 under Section 147 read with Section 144B of the Act for the AY 2014-15 is partly set aside to the above extent with the direction to pass an order afresh, in accordance with law keeping in view the observations made above and after affording reasonable opportunity of being heard to the assessee."
Against the above order, assesse has preferred an appeal before us.5. We have heard both the parties and perused the records. Ld. Counsel for the assessee has summarized the submissions as under:- "1. The appellant, most respectfully, like to submit as that in the instant case original assessment was framed under Section 143(3) of the Act, by the Ld. ACIT Hisar on 17.08.2016. (Refer PB page No 1-2) 2. The impugned order under Section 263 passed by Ld. PCIT, Rohtak was originated from the re-assessment order passed by the AO under Section 148 of the Income Tax Act, 1961 on 30.03.2022.
The reassessment proceeding initiated by the revenue to "verify the transaction entered into by the assessee in Fictitious Losses in Equity/Derivative Trading." (Refer PB page No 86) 4. Your honor, we wish to submit that the time limit to pass the order under Section 263(1) is provided under Section 263(2) of the Act, which stipulates that no order under Section 263(1) be passed after the expiry of two years from the end of FY in which order is passed.
At this juncture our humble submission is that the order under Section 263(1) can, in case of reassessment proceedings, be passed only on issue which are the subject matter of reassessment proceeding.
6. In the instant case the, Ld. PCIT set aside the assessment on following issue which are not subject matter of re-assessment proceeding: a) During the year under consideration, as declared at Sr. No. 27(ii) of ITR, the assessee 'company' had paid an amount of Rs.7,36,321/- on account of professional/ consultancy fees. Whereas perusal of Tax Audit Report (3CD) revealed that the assessee has paid an amount of Rs.21,17,597/ - on account of professional/ consultancy fees. Therefore, there is a mismatch of Rs.13,81,276/ - (2117597 - 736321) between the figures shown by the assessee in the IIR and Audit report(CD) and the same is required to be taxed as per Section 69C of the Act. Thus, FAO has failed to bring to tax an amount of Rs.13,81,276/ - (2117597 - 736321). b) On these discrepancies as pointed out vide previous para, assessee has stated that the expense relating to the professional and technical fees and commission head is classified under another various head of expenses in ITR. The reply filed by the assessee has been considered but these issues require detailed inquiry and further verification, therefore, the reply filed by the assessee is not satisfactory and remained unacceptable. c) On the perusal of assessment records and documents downloaded from ITBA, it has been observed that the above discrepancies were not pointed out by the FAO and no inquiry was conducted by the AO in this matter. Thus, the AO has failed to make sufficient inquiry on these issues and also failed to examine the material on record and to apply the correct provisions of the Income Tax Act, 1961. (Refer Para 5 of order passed under Section 263).
7. We humbly submit that the time limit for passing order for the issues, on which the Ld. PCIT set aside the order, would be counted from the assessment order passed under Section 143(3) of the Income Tax Act, 1961 on 12.05.2017 and not from assessment order passed under Section 148 of the Income Tax Act on 30.03.2022. Reliance may be placed on the following judicial pronouncements: a) M/s. Bonjour Estates (P) Ltd. Vs. The PCIT (1), New Delhi in b) JINDAL STEEL AND POWER LTD. VERSUS PR. CIT, GURGAON - [2020] 79 ITR (Trib) 636 (ITAT [Del]) c) COMMISSIONER OF INCOME-TAX VERSUS ALAGENDRAN FINANCE LTD. - [2007] 293 ITR 1 (SC) d) COMMISSIONER OF INCOME TAX VERSUS BHARTI AIRTEL LIMITED - 2013 (7) TMI 585 - DELHI HIGH COURT e) ASHOKA BUILDCON LTD., VERSUS 1. ASSTT. COMMISSIONER OF INCOME TAX, 2. COMMISSIONER OF INCOME TAX - 2010 (4) TMI 152 - BOMBAY HIGH COURT f) THE COMMISSIONER OF INCOME TAX VERSUS M/S. LARK CHEMICALS LTD. [2014] 368 ITR 655 (Bom) g) LG ELECTRONICS INDIA P. LTD. VERSUS PRINCIPAL COMMISSIONER OF INCOME-TAX - 2016 (11) TMI 798 - ALLAHABAD HIGH COURT h) MADHYA GUJARAT VIJ COMPANY LTD. VERSUS ACIT, CIR. 2 (1) (2) BARODA 2022 (4) TMI 739 - ITAT AHMEDABAD i) RAJESH SHANTILAL SANGHVI VERSUS PCIT-1, AHMEDABAD - 2021 (9) TMI 1166 - ITAT AHMEDABAD It is prayed that kindly quash the order of Ld. PCIT passed under Section 263 of the Act 5.1 Ld. DR could not controvert the aforesaid submissions of the Ld. AR, but however, he relied upon the order of the Ld. PCIT.
Upon careful consideration, we note that in this case original assessment was framed under Section 143(3) of the Act, by the ACIT Hisar on 17.08.2016 and the impugned order under Section 263 passed by Ld. PCIT, Rohtak was originated from the re-assessment order passed by the AO under Section 148 of the Income Tax Act, 1961 on 30.03.2022. However, the reassessment proceeding initiated by the revenue to "verify the transaction entered into by the assessee in Fictitious Losses in Equity/Derivative Trading." We find considerable cogency in the contention of the Ld. AR that the time limit to pass the order under Section 263(1) is provided under Section 263(2) of the Act, which stipulates that no order under Section 263(1) be passed after the expiry of two years from the end of FY in which order is passed. However, the impugned order under Section 263(1) can, in case of reassessment proceedings, be passed only on issue which are the subject matter of reassessment proceeding. We further find potency in the submission of the Ld. AR that in the instant case the, Ld. PCIT set aside the assessment on following issue which are not subject matter of re-assessment proceeding: a) During the year under consideration, as declared at Sr. No. 27(ii) of ITR, the assessee 'company' had paid an amount of Rs.7,36,321/- on account of professional/ consultancy fees. Whereas perusal of Tax Audit Report (3CD) revealed that the assessee has paid an amount of Rs.21,17,597/ - on account of professional/ consultancy fees. Therefore, there is a mismatch of Rs.13,81,276/ - (2117597 - 736321) between the figures shown by the assessee in the IIR and Audit report(CD) and the same is required to be taxed as per Section 69C of the Act. Thus, FAO has failed to bring to tax an amount of Rs.13,81,276/ - (2117597 - 736321). b) On these discrepancies as pointed out vide previous para, assessee has stated that the expense relating to the professional and technical fees and commission head is classified under another various head of expenses in ITR. The reply filed by the assessee has been considered but these issues require detailed inquiry and further verification, therefore, the reply filed by the assessee is not satisfactory and remained unacceptable. c) On the perusal of assessment records and documents downloaded from ITBA, it has been observed that the above discrepancies were not pointed out by the FAO and no inquiry was conducted by the AO in this matter. Thus, the AO has failed to make sufficient inquiry on these issues and also failed to examine the material on record and to apply the correct provisions of the Income Tax Act, 1961.
In our view, as per settled law, the time limit for passing order for the issues, on which the Ld. PCIT set aside the order, would be counted from the assessment order passed under Section 143(3) of the Income Tax Act, 1961 on 12.05.2017 and not from reassessment order passed under Section 147 of the Income Tax Act on 30.03.2022. This view has been fully supported by the decision of the Hon'ble Supreme Court of India in the case of COMMISSIONER OF INCOME-TAX VERSUS ALAGENDRAN FINANCE LTD. - [2007] 293 ITR 1 (SC) wherein it has been held as under:- "15. We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, having regard to the fact that the Commissioner of Income-tax exercising its revisional jurisdiction reopened the order of assessment only in relation to lease equalization fund which being not the subject of the reassessment proceedings, the period of limitation provided for under sub-section. (2) of Section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus, been invoked by the Commissioner of Income-tax beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity.”
In the background of the above stated facts and circumstances of the case and respectfully following the aforesaid precedent, we quash the impugned order passed by the Ld. PCIT, Rohtak under Section 263 of the Act and allow the grounds raised by the Assessee. Accordingly, the Appeal for assessment year 2014-15 is allowed.
As regards assessment year 2015-16 is concerned, since the facts of the assessment year 2015-16 are similar and identical to assessment year 2014-15 as aforesaid, hence, our aforesaid decision given for the assessment year 2014-15 shall apply mutatis mutandis to the assessment years 2015-16 as well. We hold and direct accordingly. As a result, the assessee's appeal for AY 2015-16 also stand allowed on the aforesaid directions.10. In the result, both the assessee's appeals stand allowed.