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Income Tax Appellate Tribunal, ‘B’ BENCH, KOLKATA
Before: Shri Sanjay Garg & Shri Girish Agrawal
Per Sanjay Garg, Judicial Member:- The appeal filed by the assessee is directed against the order of ld. Principal Commissioner of Income Tax-3, Kolkata (hereinafter referred to as ‘PCIT’) dated 10.06.2020 exercising his revision jurisdiction under section 263 of the Income Tax Act, 1961.
The ld. PCIT in this case exercising his revision jurisdiction under section 263 of the Income Tax Act has set aside the assessment order holding the same as erroneous and prejudicial to the interest of
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revenue with a direction for denovo assessment after making necessary verification and enquiries for the following reasons:- “(1) That the AO has allowed the business expenditure of Rs.3.30 crores, debited in the Profit & Loss Account, towards buy-back of shares from the two shareholders, namely Mr. Varun Rajgarhia and Mr. Vardhan Rajgarhia. However, as per section 115QA(1) of the Act, any amount of distributed income by the domestic company on buy-back of shares (not being shares listed on a recognised stock exchange) from a shareholder shall be charged to tax and such company shall be liable to pay additional income tax at the rate of 20% on the distributed income. In this case, the company which needed to pay income tax on distributed income has not paid the same.
(2) That the company has not paid the tax to the credit of the Central Government within 14 days from the date of payment of the consideration to the tune of Rs.3.30 crores to the two shareholders on buy-back of such shares as required by section 115QA(3) of the Act.
(3) That the company is deemed to be an assessee in default within the meaning of section 115QC.
(4) That the AO has passed the order u/s 154/143(3) on 23.09.2019 without making any addition on this issue”.
The assessee has contested the validity of the impugned revisionary order passed by the ld. PCIT, inter alia, on the ground that the ld. PCIT has passed the aforesaid revisionary order against the order passed by the ld. Assessing Officer under section 154 of the Income Tax Act, even when the subject matter of the revision did not at all arise out of the said rectification order passed by the ld. Assessing Officer under section 154 of the Income Tax Act and hence, therefore, the order passed by the ld. PCIT was not sustainable; That the issue relating to buy-back of shares had been duly examined by the Assessing Officer in the assessment proceedings carried out under section 143(3) of the Income Tax Act, whereby the assessment order dated 28.12.2017 was passed; That the provisions of section 115QA of
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the Income Tax Act are applicable to the buy-back of shares under section 77A of the Companies Act, 1956 (as then existed) and since in the case of the assessee, the shares were bought back under specific orders passed by the Company Law Board Bench under section 402 of the Companies Act, 1956, therefore, the aforesaid provisions of section 115QA of the Income Tax Act were not applicable in the case of the assessee; That DIN Number was not mentioned on the notice issued by the PCIT under section 263 of the Income Tax Act. That the PCIT has not mentioned the specific clause of Explanation to Section 263 as amended by the Finance Act, 2015 in the notice issued under section 263 of the Income Tax Act and further that the aforesaid revision jurisdiction was invoked on the proposal of the ld. Assessing Officer, which was bad-in-law. Apart from that, even that the assessment framed under section 143(3) of the Act itself was bad-in-law as the same was framed by the ld. Assessing Officer, i.e. ACIT, Ward-8(1), Kolkata, who had not issued notice under section 143(2) of the Act.
Ld. Departmental Representative, on the other hand, has relied upon the findings of the ld. PCIT.
We have heard the rival contentions and gone through the record. We find force in the first and foremost contention of the ld. Counsel for the assessee that in this case, the ld. PCIT has exercised his revision jurisdiction in respect of order passed under section 154 of the Income Tax Act, even when the subject matter of the revision did not at all arise out of the said rectification order passed by the ld. Assessing Officer under section 154 of the Income Tax Act. A perusal of the case file records shows that the assessment order under section 143(3) of the Income Tax Act in this case was passed on 28.12.2017. The issue relating to the levy of tax under section 115QA was examined by the ld. Assessing Officer in the said assessment proceedings. As per the provisions of section 263(1), ld. PCIT/CIT can
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exercise his revision jurisdiction and thereby may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the ld. Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue. However, sub- section (2) to section 263 provides that no order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
5.1. In the case in hand, the assessment order under section 143(3) was passed on 28.12.2017 and the ld. PCIT could have exercised his revision jurisdiction by 31.03.2019. However, in this case, the impugned order of the ld. PCIT under section 263 of the Act is dated 10.06.2020, which is barred by limitation in respect of the assessment order dated 28.12.2017. However, a perusal of the show-cause notice issued by the ld. PCIT under section 263 of the Income Tax Act reveals that ld. PCIT has sought to revise the rectification order dated 23.09.2019 passed by the Assessing Officer under section 154 of the Act in respect of the value of the property and unabsorbed depreciation. The issue relating to the buy-back shares and application of the provisions of section 115QA was not under consideration before the ld. Assessing Officer in the rectification proceedings carried out under section 154 of the Income Tax Act. It is pertinent to mention here that the order can be rectified under section 154 of the Income Tax Act if there is an error apparent on record as occurred in the said order. The assessee vide his application dated 18.08.2019, copy of which has been placed at page no. 41 of the paper book, had submitted to the ld. Assessing Officer regarding the applicable rate @ 20% of long-term capital gains and set off of unabsorbed depreciation, whereupon the ld. Assessing Officer passed the rectification order. The ld. Assessing Officer was not supposed to re-visit the entire assessment order or to re-assess the income in a rectification order passed under section 154 of the Income Tax Act. It was beyond the
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jurisdiction and scope of the powers of the ld. Assessing Officer under section 154 of the Income Tax Act to make an addition by way of revisiting the entire assessment order and thereby reassess the income of an assessee on a debatable issue. Therefore, it cannot be said that there was any error occurred in the rectification order passed by the ld. Assessing Officer under section 154 of the Income Tax Act.
5.2. Moreover, the assessee had also demonstrated during the assessment proceedings that the provisions of section 115QA were not applicable in its case as per the relevant provisions as were in force for the assessment year under consideration. That in the Explanation to Section 115QA(1), as applicable prior to 01.06.2016, buy-back means that purchase by a Company of its own shares in accordance with the provisions of section 77 of the Companies Act. That as per the said provisions in force during the relevant assessment year, the buy- back pursuant to the order of the Company Law Board Bench under section 402 of the Companies Act was not included. Therefore, even otherwise, the ld. PCIT was not justified in invoking the provisions of section 263 of the Income Tax Act in this respect.
5.3. Even otherwise, this issue being a debatable issue, it cannot be said that either the assessment order dated 28.12.2017 or the rectification order passed under section 154 of the Act was erroneous. Therefore, the order passed by the ld. PCIT under section 263 of the Act is not sustainable and the same is hereby quashed.
In the result, the appeal of the assessee stands allowed. Order is pronounced in the open court on November 22, 2022 Sd/- Sd/- (Girish Agrawal) (Sanjay Garg) Accountant Member Judicial Member Kolkata, the 22nd day of November, 2022
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Copies to : (1) C.M. Rajgarhia (P) Limited, C/o. M/s. Salarpuria Jajodia & Co., 3rd Floor, 7, Chittaranjan Avenue, Kolkata-700072
(2) Principal Commissioner of Income Tax-3, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700069
(3) Commissioner of Income Tax- , Kolkata;
(4) The Departmental Representative (5) Guard File