2020 (8) TMI 407 - AT - Income Tax

Tax Tribunal Invalidates Jurisdictional Action Under Section 263 for Lack of Compliance

The Tribunal held that the second Principal Commissioner of Income-tax invoked revisional jurisdiction under Section 263 without satisfying the required ... Revision u/s 263 - Addition u/s 68 - second revisional jurisdiction of Pr. CIT - Whether the AO (called second AO) has not conducted enquiry while framing re-assessment order - HELD THAT:- Assessee had discharged the onus upon it about the identity creditworthiness and genuineness of the share capital and premium collected by the assessee from the respective share subscribers. Since the aforesaid exercise was carried out by the second AO in the reassessment proceedings and the documents referred to above are in the assessment folder, the Second Ld. Pr. CIT erred in holding the reassessment order of the AO in respect of share capital and premium collected by the assessee as erroneous as well as prejudicial to the interest of the revenue. In the light of the aforesaid discussions and on perusal of the documents, we are of the view that AO’s view to accept the identity, creditworthiness and genuineness of the share capital and premium collected from the share subscribers was a plausible view and at any rate can be termed as an unsustainable view on law or facts. Since the assessee company has discharged its onus as discussed and still if the Second Pr. CIT had to find the order of Second AO erroneous for lack of enquiry or for not collecting the entire facts, then the Second Pr. CIT ought to have called for the additional facts which he thinks that the Second AO has not collected from the assessee or the shareholders and then explained in his impugned order as to what effect those additional documents would have made on the second assessment order/reassessment order or in other words the impact on the decision making process of framing the second assessment order due to the failure of second AO’s omission to collect the additional documents. Second Pr. CIT has not carried out any such exercise or even spelled out in his impugned order, which all documents the second AO failed to collect for considering the total facts; and even if we presume he has conducted such an exercise, then he has not been able to bring out any adverse factual finding to upset the view of Second AO. No merit in the vague allegation of second Pr. CIT that the second AO has not collected the full facts necessary to decide the issue of share capital & premium. Second AO, the assessing authority who is a quasi- judicial office has discharged his dual role as an investigator as well as an adjudicator. Angle of doctrine of merger - second Pr. CIT – 4 by passing the second revisional order dated 14.03.2019 has substituted the First Pr. CIT’s order passed u/s. 263 of the Act dated 23.08.2016 with his own order which he cannot do since the second assessment order/re-assessment of the Second AO dated 07.12.2016 was pursuant to the first revisional order of the First Ld. Pr. CIT and on the very same subject matter on which specific directions/instructions were given by the First Ld. Pr.CIT, which direction since having been complied by the AO, brings into operation the doctrine of merger the subject matter i.e. share capital & premium collected by assessee company. Resultantly the second Ld. Pr.CIT, again cannot rake-up the same subject matter without the second Ld. Pr.CIT in the second revisional order spells out where the error happened to second AO as an investigator or adjudicator, which exercise the Second Ld. Pr.CIT has not done, so the second Ld. Pr. CIT cannot be permitted to again ask the AO to start the investigation in the way he thinks it proper on the very same subject on which merger has taken place by virtue of the order of First Ld. Pr. CIT. And if this practice is allowed, then there will be no end to the assessment proceedings meaning no finality to assessment proceedings and that is exactly why the Parliament in its wisdom has brought in safe-guards, restrictions & conditions precedent to be satisfied strictly before assumption of revisional jurisdiction. Be that as it may be, as discussed above, we find that the Second Ld. Pr. CIT without satisfying the condition precedent u/s 263 of the Act has invoked the revisional jurisdiction (second time), so all his actions are ab initio void. CIT(A) has made a bald statement that the AO’s assessment order attracts Explanation 2(c) u/s. 263 of the Act. However, he failed to spell out in his impugned order how the action of AO while framing the assessment order is not in accordance to any order, direction or instruction issued by the Board under section 119 of the Act. So, the deeming fiction as envisaged in Explanation (2) u/s. 263 of the Act cannot be used to interfere with the order of AO. This action of Ld. Pr. CIT is bad for nonapplication of mind. In the light of the aforesaid discussion and case laws cited supra, we find merit in the appeal filed by the assessee, therefore, we allow the appeal of assessee on the ground that since the Ld. Pr CIT has exercised his revisional jurisdiction u/s. 263 without satisfying the condition precedent as stipulated in section 263 of the Act. Therefore, we hold that the impugned action of the Ld. Pr. CIT is without jurisdiction and, therefore, is null in the eyes of law - Decided in favour of assessee. Issues Involved:1. Validity of invoking revisional jurisdiction under Section 263 of the Income-tax Act, 1961.2. Whether the Assessing Officer (AO) conducted proper inquiries during the reassessment.3. Applicability of the doctrine of merger.4. Compliance with the directions given in the first revisional order.5. Whether the assessment order was erroneous and prejudicial to the interests of the Revenue under Explanation 2(c) to Section 263.Detailed Analysis:1. Validity of invoking revisional jurisdiction under Section 263 of the Income-tax Act, 1961:The main grievance of the assessee was against the action of the Learned Principal Commissioner of Income-tax (Pr. CIT) invoking his second revisional jurisdiction under Section 263 of the Income-tax Act, 1961 (the Act). The assessee contended that the action of the Pr. CIT was without satisfying the requisite conditional precedent as stipulated under Section 263 of the Act and therefore without jurisdiction and resultantly bad in law. The Tribunal noted that the Pr. CIT could invoke the revisional jurisdiction if the assessment order was erroneous in so far as prejudicial to the Revenue. The Tribunal relied on the judicial precedent laid down by the Hon'ble Supreme Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83 (SC), which held that twin conditions need to be satisfied before exercising revisional jurisdiction under Section 263 of the Act: the order of the AO must be erroneous and prejudicial to the interest of the Revenue.2. Whether the Assessing Officer (AO) conducted proper inquiries during the reassessment:The Tribunal examined whether the second AO conducted proper inquiries during the reassessment. It was noted that the AO issued notices under Section 133(6) of the Act to all the shareholders and received replies along with documents to substantiate the identity, creditworthiness, and genuineness of the share capital and premium invested by them. The AO verified these documents and did not draw any adverse inference against the assessee. The Tribunal found that the AO discharged his duty as an investigator and conducted the necessary inquiries as per the directions given by the first Pr. CIT in his order dated 23.08.2016.3. Applicability of the doctrine of merger:The Tribunal observed that the second AO framed the reassessment order pursuant to the first revisional order of the first Pr. CIT dated 23.08.2016. The Tribunal held that the doctrine of merger applied in this case, and the second Pr. CIT could not interfere with the reassessment order on the same subject matter on which specific directions were given by the first Pr. CIT. The Tribunal noted that the second Pr. CIT did not spell out where the error happened to the second AO as an investigator or adjudicator and thus could not ask the AO to start the investigation again on the same subject.4. Compliance with the directions given in the first revisional order:The Tribunal noted that the first Pr. CIT directed the AO to carry out a proper examination of the books of accounts and bank accounts of the assessee as well as the investors, examine the source of share application money, identity of investors, and its genuineness. The Tribunal found that the second AO complied with these directions by issuing notices under Section 133(6) of the Act, verifying the documents submitted by the shareholders, and satisfying himself about the identity, creditworthiness, and genuineness of the share capital and premium collected by the assessee.5. Whether the assessment order was erroneous and prejudicial to the interests of the Revenue under Explanation 2(c) to Section 263:The second Pr. CIT invoked Explanation 2(c) to Section 263 of the Act, stating that the assessment order was not made in accordance with any order, direction, or instruction issued by the Board under Section 119 of the Act. However, the Tribunal found that the second Pr. CIT did not spell out how the action of the AO was not in accordance with any order, direction, or instruction issued by the Board under Section 119 of the Act. The Tribunal held that the deeming fiction under Explanation 2(c) to Section 263 of the Act could not be used to interfere with the order of the AO without proper application of mind.Conclusion:The Tribunal concluded that the second Pr. CIT invoked the revisional jurisdiction under Section 263 without satisfying the condition precedent as stipulated in the Act. The Tribunal held that the impugned action of the second Pr. CIT was without jurisdiction and, therefore, null in the eyes of law. Consequently, the Tribunal quashed the impugned order of the second Pr. CIT and allowed the appeal of the assessee.