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Income Tax Appellate Tribunal, “A” BENCH KOLKATA
Before: SHRI RAJPAL YADAV & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the revision order of Ld. Pr. CIT, Kolkata-1 passed u/s. 154 read with section 263 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) vide order No. ITBA/REV/F/REV5/2021- 22/1040424843(1) dated 07.03.2022.
Grounds of appeal raised by the assessee are reproduced as under:
“1. The order passed u/s. 154 has been passed without allowing any opportunity of hearing and therefore void ab initio. 2. The impugned order purportedly passed u/s. 154 is beyond the scope of section 154 and therefore without jurisdiction and bad in law. 3. The order passed u/s. 154 is barred by limitation provided u/s. 263 of the Act.
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The Appellant craves leave to add, alter, amend and/or withdraw any of the grounds or ground of appeal either before or at the time of appeal hearing.”
Brief facts of the case are that Ld. Pr. CIT-1 had passed an order u/s. 263 of the Act on 31.03.2021 against the assessment order passed u/s. 143(3) of the Act on 28.12.2018. The order u/s. 263 of the Act was challenged before the Co-ordinate Bench of ITAT, Kolkata by the assessee in ITA No. 184/Kol/2021. This appeal by the assessee was disposed of by the Co-ordinate Bench of ITAT, Kolkata vide its order dated 24.03.2022 wherein on the two issues which were raised for taking action u/s. 263 of the Act the revisionary order was quashed to that extent. In the revisionary proceedings, Ld. Pr. CIT had issued three show cause notices on 12.03.2021, 19.03.2021 and 26.03.2021. Though these three show cause notices were issued but ultimately in the concluding paragraph of the order u/s. 263 dated 31.03.2021, Ld. Pr. CIT had relegated the issues for further investigation by the Ld. AO only for the points raised in the first show cause notice of 12.03.2021 for which the direction was noted in paragraph 13 of the said order which reads as under:
“13. In the result, the assessment order u/s. 143(3) dated 28.12.2018 for Ay 2016-17 is set aside to the file of the Assessing officer with a direction to pass a fresh assessment order after considering the issues discussed in para 2 above, the aforesaid observations, as per law and after giving an opportunity of being heard to the assessee.” [emphasis supplied by us by bold and underline]
3.1. In the course of hearing of appeal in ITA No. 184/Kol/2021, supra, the bench had sought a clarification from the Ld. CIT, DR in respect of discrepancy which came to the notice of the Bench as the matter was relegated by the Ld. Pr. CIT on the issues raised in only one of the show cause notices of 12.03.2021 while the matter was pending before the Co-ordinate Bench of ITAT, Kolkata in the said
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appeal. Instead of providing any clarification, Ld. Pr. CIT passed rectification order u/s. 154 read with section 263 of the Act dated 07.03.2022 by which paragraph 13 (reproduced above) of the original order u/s. 263 was modified. The modified paragraph under the impugned order u/s. 154 read with sec. 263 of the Act reads as under:
“On careful examination, I find that there is mistake in para 13 of the order u/s. 263 dated 31.03.2021 which is apparent from record. Now the order u/s. 263 is rectified u/s. 154 and please read para 13 in the order u/s. 263 as follows: In the result, the assessment order u/s. 143(3) dated 28.12.2018 for Ay 2016-17 is set aside to the file of the Assessing Officer with a direction to pass a fresh assessment order after considering the issues discussed in para 2 and 6 above, the aforesaid observations, as per law and after giving an opportunity of being heard to the assessee.” [emphasis supplied by us by bold and underline]
3.2. Ld. Counsel for the assessee Shri N. S. Saini, Advocate had objected to the rectification order passed by the Ld. Pr. CIT during the pendency of the aforesaid appeal. In this respect, the bench in its order observed that any order passed u/s. 154 of the Act would give rise to an independent appellate proceeding. The rectification order passed by the Ld. Pr. CIT is in itself an appealable order. Since the issues incorporated in the rectification order were not the subject matter of that appeal, assessee was given liberty to take all such opportunity as it deems fit by filing a separate/fresh appeal in accordance with the provisions of the Act and the Income Tax Rules. In the first appeal stated above, issues raised in the revisionary order u/s. 263 of the Act in respect of show cause notice dated 12.03.2021, Co-ordinate Bench of ITAT, Kolkata held that no action u/s. 263 of the Act is justifiable and, therefore, quashed the order to that extent. In respect of the other two show cause notices issued by the Ld. Pr. CIT, there were no specific directions for the AO which were subsequently incorporated by way
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of passing an order u/s. 154 of the Act during the pendency of the stated first appeal which is the impugned order before us challenged by the assessee.
3.3. On this aspect of passing of an order u/s. 154 of the Act during the pendency of the first appeal referred above, the coordinate bench had observed in its order that rectification order has to be judged in an independent appeal within the parameter and scope available under the Act. It thus resisted itself from making any observation on the points contained in the other two show cause notices. Relevant extracts of the observations and finding in this respect by the coordinate bench of ITAT, Kolkata in ITA No. 184/Kol/2021 are reproduced as under: “19. As far as the other show cause notices issued by the ld. Commissioner and discussed in. the impugned order are concerned, on these show cause notices, he has not issued any specific directions for the assessing officer. One way to appreciate this situation would be that he might be satisfied with the explanation offered by the assessee and did not give any direction. The other way to appreciate the situation would be that he has passed an order u/s 154 of the Act. Therefore, in the present case it is neither advisable nor desirable on our end to express any opinion on those points. The scope of Section 154 is very limited. The rectification order has to be judged in an independent appeal within the parameter of such scope. Therefore, we resist ourselves from making any observation on the points contained in the other two show cause notices. The observations made by us for explaining the issues u/s 154 of the Act or on the other two show cause notices will not impair or injure the case of the revenue nor it will cause any prejudice to the defence/explanation of the assessee. 20. It is also pertinent to note that if the impugned order is quashed on account of some jurisdictional error then probably there could not be any rectification u/s. 154. For example if the impugned order is time barred and it is quashed then there will not be any consequential proceedings. 21. We are confining ourselves to a limited point that two issues have been raised under the fi4rst show cause notice. On these two issues no action u/s. 263 of the Act is justifiable and, therefore, we quash the order of the Ld. Commissioner to this extent. Other issues are not the subject matter of appeal before us and, therefore, we do not, make any observations on these issues.”
In the impugned order u/s. 154 read with section 263 of the Act, Ld. Pr. CIT gave revisionary directions on the issues raised by
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the first show cause notice of 12.03.2021, and further relegated the issues raised through the other two show cause notices of 19.03.2021 and 26.03.2021 to the AO. Being aggrieved by this rectification order passed by Ld. Pr. CIT, the assessee is in appeal before the Tribunal by taking the aforesaid grounds.
Before us, Ld. Counsel for the assessee submitted that no notice of hearing was given to the assessee before passing the impugned rectification order which has been passed in the guise of clarification sought by the Hon’ble ITAT, thereby violating the principles of natural justice as well as the provisions of section 154(3) of the Act. He submitted that the order passed is beyond the scope of section 154 and is without jurisdiction. He further submitted that this order u/s. 154 is barred by limitation as provided u/s. 263 of the Act and is, therefore, bad in law.
Per contra, Ld. CIT, DR strongly supported the rectification order passed by the Ld. Pr. PCIT and submitted that it is very much within the scope of the provisions of section 154 of the At as it is a mistake apparent from record that the issues raised by way of other two show cause notices were inadvertently missed by the Ld. Pr. CIT while relegating the order to the Ld. AO to pass fresh assessment order.
We have heard the rival contentions and perused the material available on record and given our thoughtful consideration to the issues raised by the Ld. Counsel in the present appeal. As already noted above, from the observations of the coordinate bench of ITAT, Kolkata in assessee’s own case, supra, the scope of section 154 is very limited and it has to be judged in an independent appeal within the parameters of such scope. It is pertinent to note that by
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way of the first order of the coordinate bench, the revisionary order u/s. 263 dated 31.03.2021 has been quashed on the two issues raised by the Ld. Pr. CIT by way of first show cause notice on 12.03.2021. We find that in the present facts and circumstances, the legal maxim ‘sublato fundamento cadit opus’ is applicable, meaning thereby – ‘a foundation being removed, the superstructure falls’. Once the basis of a proceeding is gone, the action taken thereon would fall to the ground. Thus, in the absence of such foundation, exercise of a suo motu power is impermissible. It should not be presumed that initiation of power under suo motu revision is merely an administrative act. It is an act of a quasi- judicial authority and based on formation of an opinion with regard to existence of adequate material to satisfy that the decision taken by the Assessing Officer is erroneous as well as prejudicial to the interests of the revenue.
We further find that sub-section (2) of section 263 of the Act provides for limitation for passing an order u/s. 263 which reads as under:
“2. No order shall be made in 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.” 8.1. Considering this sub-section, the limitation for passing an order u/s. 263 in the present case expired on 31.03.2021 since the order sought to be revised passed u/s. 143(3) of the Act is dated 28.12.2018. By passing the impugned order u/s. 154 on the issues which were raised in the revisionary proceeding but remained to be concluded to arrive at a final conclusion/ consideration to hold the assessment order as erroneous in so far as prejudicial to the interest of revenue on those issues, could not be completed within the prescribed limitation. Assumption of
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jurisdiction u/s. 263 to hold an assessment order as erroneous in so far as prejudicial to the interest of revenue on the issues on which final consideration could not be drawn by the Ld. Pr. CIT while giving directions to the Ld. AO for fresh assessment is going beyond the limitation prescribed u/s. 263 (2) of the Act in the garb of provision of section 154 of the Act. The limitation prescribed u/s. 263(2) of the Act cannot be extended by resorting to the provisions of section 154 of the Act. Such an approach, if permitted, will never lead to finality of the proceedings invoked u/s. 263 and, therefore, cannot be appreciated, making the provision prescribing the limitation otiose. It is like when a case is reopened say on four issues and addition/disallowance are made only on three of the issues and one is missed for the purpose of making any addition or disallowance. Subsequently, by resorting to section 154 addition/disallowance cannot be made on the one issue which was missed in the assessment proceeding completed, once the time limit to pass the assessment order has expired.
8.2. It is an issue of assumption of jurisdiction and not a mistake apparent from record since provisions of section 263 requires the Ld. Pr. CIT to apply his mind by calling for and examining the records and giving the assessee an opportunity of being heard and thereafter, forming an opinion/consideration to pass an order by holding it as erroneous in so far as it is prejudicial to the interest of revenue.
8.3. In the present case, we hold that the impugned order u/s. 263 by way of rectification is time barred and liable to be quashed. Also, we hold that the original order u/s. 263 dated 31.03.2021 has already been quashed on the two issues raised under the first show cause notice by the coordinate bench. There cannot be any
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occasion for rectification u/s. 154 of the Act for that order which has already been quashed. Accordingly, grounds taken by the assessee are allowed.
In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 09November, 2022.
Sd/- (RAJPAL YADAV) Sd/-(GIRISH AGRAWAL) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 09.11.2022 JD, Sr. P.S. Copy to: 1. The Appellant: 2. The Respondent:. 3. Pr.CIT, Kolkata-1. Kolkata. 4. The DR, ITAT, Kolkata Bench, Kolkata //True Copy// [ By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata
Date of dictation- 03/11/2022 2. Date on which the typed draft order is placed before the Dictating Member and Other member 04/11/2022 3. Date on which the approved order comes to the Sr. P.S./P.S. - /11/2022 4. Date on which the file goes to the Bench Clerk /11/2022 5. Date on which the file goes to the O.S. ……………………………. 6. Date of Dispatch of the Order……………….…