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Facts
The assessee filed its return for AY 2015-16 declaring 'nil' income and claimed a loss carry forward. The AO passed an assessment order under Section 143(3), making certain disallowances and additions. The CIT initiated proceedings under Section 263, questioning the carry forward of losses based on the return filing date.
Held
The Tribunal held that the action taken by the CIT under Section 263 was not sustainable as it was initiated without issuing a proper Show Cause Notice. The earlier notices issued by the CIT were based on an incorrect premise that the return was not filed within the due date, which was later extended by the CBDT.
Key Issues
Whether the CIT's order under Section 263 is sustainable without a proper Show Cause Notice and when based on an erroneous understanding of the due date for filing the return.
Sections Cited
147, 148, 143(3), 263, 139(1), 14A
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
the order of the Pr. Commissioner of Income Tax, Chandigarh-1 [in short ‘the PCIT’] dated 27.03.2021 passed under Section 263 for assessment year 2015-16.
Though the assessee has taken four grounds of appeal but in brief, its grievance revolves around a single issue A.Y.2015-16 2 namely, whether impugned order passed by the ld.
Commissioner is sustainable or not in the absence of any specific Show Cause Notice for initiating proceedings under Section 263 of the Income Tax Act.
The Registry has pointed out that appeal is time barred by 61 days. However, ld. Counsel for the assessee submitted that this period represent the Covid period because appeal was filed in 2021 whereas Covid period continued upto May,2022. Therefore, practically it is not time barred in view of the interim directions issued by the Hon'ble Supreme Court in various orders. Therefore, we condone the delay, if any and proceed to decide the appeal on merit.
The brief facts of the case are that assessee has filed its original return of income on 28.11.2015 declaring ‘nil’ income and claimed a carry forward of current loss of Rs.61,50,658/-. The AO has passed an assessment order under Section 143(3) on 29.08.2017. He made a disallowance under Section 14A amounting to Rs.3,37,534/- and an addition of Rs.2,22,347/-. In this way, he A.Y.2015-16 3 determined losses to be carried forward at Rs.55,90,777/- as against the loss claimed by the assessee.
The ld. CIT took cognizance under Section 263 of the Income Tax Act, 1961 on the ground that carry forward of losses could only be permitted to an assessee if original return was filed within the time limit provided under Section 139(1) of the Income Tax Act. Ld. CIT was of the opinion that assessee has not filed its return of income under Section 139(1), therefore, a Show Cause Notice dated 19.02.2020 was issued to the assessee. In response to this Show Cause Notice, assessee has filed reply and submitted that due date of filing of the return was extended upto 30.11.2015 and assessee has filed the return well within the due date provided in the Act. This return was filed on 28.11.2015. Ld. CIT dropped the proceedings initiated under Section 263 of the Income Tax Act. Though there is no specific order brought to our notice vide which these proceedings were dropped but he did not take any action.
After some time, one more notice was issued to the assessee under Section 263 vide which same query was raised that A.Y.2015-16 4 assessee has not filed the return within the due date as provided under Section 139(1) of the Income Tax Act. The assessee has replied to the ld. Commissioner that it has filed the return within due date because in that year, time limit was extended. The ld. CIT thereafter, could not commence the enquiry under Section 263 of the Act.
After some time, a fresh notice was issued to the assessee on 23.02.2021. Copies of all these notices are placed on the Paper Book. Relevant part of this Show Cause Notice read as under : NOTICE FOR THE HEARING M/s/Mr./Ms. Subject : Notice for Hearing in respect of Revision proceedings u/s 263 of the Income Tax Act, Assessment Year 2015- 16.
In this regard a hearing in the matter is fixed on 02/03/2021 at 11:00 AM. You are requested to attend in or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations his office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link : incometaxindiaefilig.gov.in.
Kindly refer to the ongoing 263 proceedings in your case for the AY 2015-16 In connection with the above, you are requested to furnish the details of unsecured loans taken/deposits made (including the squared up loans) during the 2014-15 relevant to AY 2015-16. Also furnish the complete ledgers of the respective parties along with copy of their ITRs and bank account statements A.Y.2015-16 5 corroborating the genuineness of the transactions entered into during the year. Your case is fixed for hearing before the undersigned on 02.03.2021 at 11:00AM. in case n-compliance, order U/s 263 would be passed on merits on the basis of material available on record.”
The ld. Counsel for the assessee at the very outset submitted that the action taken by the ld. CIT under Section 263 of the Act is without issuing any Show Cause Notice. The ld. CIT ought to have formulated his opinion which exhibit the reasons as to why he termed the assessment order as erroneous which has caused prejudice to the Revenue but no such notice was issued to the assessee. Ld. CIT thought as if the earlier notices issued to the assessee have not attained finality therefore, 263 action is to be continued.
A perusal of the earlier notices would reveal that those notices were issued for the reason that assessee has not filed the return within the time limit provided under Section 139(1) and therefore, it is not entitled to carry forward the losses. But this observation of the ld. CIT was found to be incorrect because due date was extended by the CBDT upto 30.11.2015.
ITA No.181/CHD/2021 A.Y.2015-16 6
On the other hand, ld. CIT DR was unable to controvert the submissions of the ld. counsel. She emphasized that earlier two notices were not closed therefore, proceeding under Section 263 was open and while culminating this proceeding, CIT was well within his jurisdiction to take up any other issue which he deems fit.
In other words, the ld. CIT would consider any of the issue which has been erroneously decided by the AO and it has caused a prejudice to the interest of the Revenue.
We find that sub-clause (1) of Section 263 contemplates that the ld. 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 AO is erroneous in so far as it is prejudicial to the interest of Revenue, he may after giving assessee an opportunity of being heard and after making or causing to made such enquiry pass order thereon as the circumstances the case justified. It is pertinent to note that it cast a duty upon CIT to call for and examine the record, thereafter, form an opinion exhibiting the fact that as to how assessment A.Y.2015-16 7 order is erroneous which has caused prejudice to the Revenue. If all these three Show Cause Notices are being perused, then it would reveal that in first two Show Cause Notices, the reason assigned by the CIT was that return under Section 139(1) was not filed well within the time provided in the Section and non fulfillment of this condition would not entitle the assessee to claim carry forward of losses for future years. This finding of fact is found to be incorrect because the time limit under Section 139(1) was extended upto 30.11.2015. The assessee has brought to the notice of CIT the Notification issued by the CBDT. The assessee has filed the return on 28.11.2015.
Thus, on the basis of these Show Cause Notices, it cannot be termed that assessment order was erroneous and has caused prejudice to the revenue. The next notice, whose relevant part we have reproduced above, does not exhibit any formation of opinion at the end of the CIT for taking cognizance under Section 263 of the Act. It is, thus an enquiry letter which is depending upon earlier Show Cause Notices, therefore, this action under Section 263 is taken without issuing a proper Show Cause Notice exhibiting the A.Y.2015-16 8 fact as to why assessment order is erroneous which has caused prejudice to the Revenue. We, accordingly, allow this appeal and quash the impugned order passed under Section 263 of the Income Tax Act.
In result, the appeal of the assessee is allowed.
Order pronounced on 17.01.2025.