Tribunal quashes PCIT's order under IT Act due to procedural irregularities, grants relief to assessee

The Tribunal quashed the revisional order passed under Section 263 of the Income Tax Act, 1961, finding procedural irregularities and lack of opportunity for the assessee to be heard. The show-cause notice was issued after the scheduled hearing time, rendering the order null and void ab initio. The deductions claimed under Section 54B were deemed valid, and the PCIT's actions were considered arbitrary. The Tribunal allowed the assessee's appeal, setting aside the revisional order on 21.10.2021.

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Issues Involved:
1. Assumption of jurisdiction by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.
2. Validity of the show-cause notice issued under Section 263.
3. Merits of the deduction claimed under Section 54B of the Income Tax Act, 1961.
4. Procedural irregularities and lack of opportunity for the assessee to be heard.

Detailed Analysis:

1. Assumption of Jurisdiction by the PCIT under Section 263 of the Income Tax Act, 1961:
The assessee challenged the revisional action of the PCIT, arguing that the assessment order under revision was neither erroneous nor prejudicial to the interest of the revenue. The PCIT had called for the assessment records and opined that the assessment order was erroneous and prejudicial to the interest of the revenue. The PCIT issued a show-cause notice to the assessee, alleging that deductions claimed under Section 54B were wrongly allowed by the AO without application of mind, and thus, the assessment order was set aside for fresh adjudication.

2. Validity of the Show-Cause Notice Issued Under Section 263:
The assessee contended that the show-cause notice was not received, and no opportunity was provided to appear before the PCIT. The notice dated 10.03.2021 called for a hearing on 15.03.2021 at 11:00 AM, but the notice itself was signed on 15.03.2021 at 1.49 PM. The notice was purportedly sent to an email ID that was not received. The assessee argued that the burden of proving service of notice lies with the Department, citing the case of Venkat Naicken Trust Vs. ITO. The Tribunal found that the notice was issued after the time fixed for the hearing, and no other notice or intimation of the revisional proceedings was given to the assessee. The revisional order was passed based on this solitary, unserved show-cause notice, rendering the revisional order null and void ab initio.

3. Merits of the Deduction Claimed Under Section 54B of the Income Tax Act, 1961:
The PCIT alleged that the deductions claimed under Section 54B were wrongly allowed without adequate enquiry. The assessee argued that the land in question was agricultural land, and all conditions under Section 54B were satisfied. The land was used for agricultural purposes in the two years prior to sale, and the new land purchased was also agricultural land. The Tribunal found that the PCIT had misconstrued the facts and misapplied the law. The PCIT's observations were based on irrelevant considerations, and the deduction under Section 54B was rightly allowed by the AO. The Tribunal concluded that the PCIT's action was arbitrary and lacked application of mind, thus quashing the revisional order.

4. Procedural Irregularities and Lack of Opportunity for the Assessee to Be Heard:
The Tribunal noted that the only show-cause notice issued to the assessee was for attendance on 15.03.2021 at 11:00 AM, whereas the notice itself was issued at 1.49 PM on the same date. This indicated a total lack of opportunity for the assessee to defend its case. The Tribunal referred to the case of Tata Chemicals Limited vs. DCIT and other judgments, concluding that an order passed in violation of the audi alteram partem rule is null and void. The failure to provide a reasonable opportunity to the assessee was not a mere procedural irregularity but rendered the revisional order ab initio void and non est in law. Therefore, the revisional order was quashed on this ground as well.

Conclusion:
The Tribunal set aside and quashed the revisional order passed under Section 263 of the Income Tax Act, 1961. The appeal of the assessee was allowed. The judgment was pronounced on 21.10.2021 as per Rule 34(4) of the Income Tax Appellate Tribunal Rules, 1963.

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