2019 (12) TMI 878 - AT - Income Tax

PCIT's Jurisdictional Error Under Section 263

Manish Chirania Versus Pr. CIT-15, Kolkata

The Tribunal found that the Principal Commissioner of Income Tax (PCIT) did not properly exercise jurisdiction under section 263 of the Income Tax Act, ... Revision u/s 263 - non application of mind by PCIT - PCIT need not to take guidance from AO to revise the assessment order - HELD THAT:- PCIT exercised his jurisdiction under section 263 of the Act based on the proposal received from AO for revision of the Assessment Order. It means, the ld PCIT is using the mind of the assessing officer to revise the order of AO u/s 263 which according to us is not the scheme of section 263 of the Act. PCIT ought to apply his own mind to examine whether order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. That is, ld PCIT should examine the assessment records and assessment order made by AO to find out the error in the assessment order, as the power under section 263 is given to ld PCIT and not to ld AO. PCIT need not to take guidance from AO to revise the assessment order. That is, the revisional jurisdiction vested with the PCIT as per the scheme of the Act. The Act gives various powers to various authorities to exercise powers and they have to exercise powers in their respective given sphere which is clearly ear-marked and spelled out by the statute. Thus, the revisional jurisdiction exercised by the ld PCIT is not in accordance to law therefore, order passed by the ld PCIT u/s 263 of the Act is not sustainable in law. Issues Involved:1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961.2. Examination of statutory additions and disallowances by the Assessing Officer (AO) during the assessment proceedings.3. Validity of the PCIT's order setting aside the assessment order under section 143(3) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961:The assessee challenged the jurisdiction of the PCIT, arguing that the order passed under section 263 was 'without jurisdiction, against law and facts of the case and therefore illegal and is liable to be quashed.' The assessee contended that the PCIT erred in assuming jurisdiction under section 263 without personally examining the assessment records and relied on the suggestions of the AO who completed the assessment under section 143(3). The Tribunal noted that the PCIT exercised jurisdiction based on a proposal from the AO, which is not the scheme of section 263. The PCIT should have independently applied his mind to determine whether the assessment order was erroneous and prejudicial to the interest of revenue.2. Examination of statutory additions and disallowances by the Assessing Officer (AO) during the assessment proceedings:The PCIT observed that the AO did not properly examine several statutory additions and disallowances during the assessment proceedings, including:- Addition under section 40(a)(ia) for non-deduction of TDS on interest payment.- Proportionate interest on borrowed funds for investment in property.- Undisclosed interest on loan advances.- Preliminary expenses written off.- Proportionate interest on advances for flats and withdrawals by the proprietor.- Interest on income tax refund.In response, the assessee provided detailed explanations and evidence, claiming that the AO had made extensive inquiries and verified the expenses from the books of accounts during the assessment stage. The Tribunal found that the AO had indeed made inquiries under section 142(1) and verified various expenses, and therefore, the assessment order could not be considered erroneous or prejudicial to the interest of revenue.3. Validity of the PCIT's order setting aside the assessment order under section 143(3) of the Income Tax Act, 1961:The PCIT set aside the assessment order dated 27/11/2017, directing the AO to make a fresh assessment. The Tribunal noted that the PCIT did not independently apply his mind and relied on the AO's proposal for revision. The Tribunal emphasized that the PCIT should have examined the assessment records and order to identify any errors, as the power under section 263 is vested in the PCIT, not the AO. Consequently, the Tribunal held that the revisional jurisdiction exercised by the PCIT was not in accordance with the law, rendering the order under section 263 unsustainable.Conclusion:Based on the facts and circumstances, the Tribunal concluded that the order passed by the PCIT under section 263 was not sustainable in law and quashed the order. The appeal of the assessee was allowed.