2022 (8) TMI 429 - AT - Income Tax

Invalid subsequent order quashed under Sec 263 - ITAT Mumbai emphasizes legal foundation for revisionary powers

The ITAT Mumbai quashed the order passed by the Principal Commissioner Income Tax under section 263 of the Income Tax Act for the assessment year 2010-11. ... Revisionary jurisdiction under section 263 - Roving or fishing inquiry - Effect of quashing a revision order on consequential assessment - Jurisdictional vires of a second revision order founded on a quashed orderRevisionary jurisdiction under section 263 - Effect of quashing a revision order on consequential assessment - Jurisdictional vires of a second revision order founded on a quashed order - Validity of the second order passed under section 263 dated 13.03.2018 which was founded on an earlier order under section 263 that had been quashed by the Tribunal. - HELD THAT: - The Tribunal examined whether the PCIT could validly invoke revisionary jurisdiction in the second order dated 13.03.2018 when that order and the assessment it directed were founded on an earlier revision order dated 30.03.2015. The earlier revision order dated 30.03.2015 was quashed by the Tribunal by its order dated 18.04.2022. Since the assessment completed on 31.03.2016 under section 143(3) read with section 263 arose solely pursuant to the now-quashed 30.03.2015 revision order, that assessment was rendered infructuous. A subsequent revision order (13.03.2018) which stands on the same nonestablished foundation therefore lacked jurisdictional basis. The Tribunal held that a revision order cannot validly be sustained when its foundational order has been quashed, and that invoking section 263 on the basis of an order already invalidated amounts to acting beyond jurisdiction.The second revision order dated 13.03.2018 under section 263 is quashed as being without jurisdiction because it was founded on an earlier revision order which had been quashed by the Tribunal.Final Conclusion: The appeal is allowed: the order passed by the PCIT under section 263 dated 13.03.2018 (and the consequential assessment action founded on the earlier quashed order) is quashed for lack of jurisdiction. Issues:1. Validity of order passed by Ld. PCIT under section 263 of the Income Tax Act.2. Applicability of revisionary powers without proper grounds.3. Effect of previous ITAT judgment on subsequent orders.Analysis:1. The appeal was filed against the order passed by the Principal Commissioner Income Tax -1, Mumbai under section 263 of the Income Tax Act for the assessment year 2010-11. The Assessing Officer (AO) had completed the assessment initially, which was set aside by the Principal Commissioner. The Commissioner of Income Tax (Appeals) upheld most additions except for disallowance under section 14A. Subsequently, the Principal Commissioner issued another order under section 263, directing a fresh assessment. The assessee contended that the second order was based on the first order, which had been quashed by the ITAT in a previous judgment.2. The assessee argued that the Principal Commissioner erred in invoking revisionary powers without appreciating that the AO had completed the assessment in accordance with the law after due inquiry. The assessee relied on various judgments to support their contention. The ITAT, in a previous order, held that conducting a roving or fishing inquiry to detect potential income sources is impermissible under section 263. The ITAT quashed the order passed by the Principal Commissioner under section 263 in the earlier judgment.3. The ITAT, in the present case, observed that the order passed by the Principal Commissioner on the basis of the quashed order had no legal basis. The subsequent order under section 263 was deemed to be beyond jurisdiction due to the nullity of the foundation on which it was based. Consequently, the ITAT quashed the order passed under section 263 on 13.03.2018. The appeal of the assessee was allowed, emphasizing the lack of legal standing for the impugned order.In conclusion, the ITAT Mumbai, in its judgment, highlighted the importance of adhering to legal procedures and conducting assessments within the framework of the law. The decision underscored the significance of proper grounds for invoking revisionary powers and the impact of previous judicial pronouncements on subsequent orders.