2022 (9) TMI 329 - AT - Income Tax

ITAT quashes Section 263 proceedings, rules in favor of assessee. Key issues: jurisdiction, DTDRS, assessment discrepancies.

The ITAT quashed the proceedings initiated under Section 263 of the Income Tax Act, 1961, allowing the appeal of the assessee. The ITAT concluded that the ... Revision u/s 263 by CIT - Case of the assessee was reopened u/s 148 on the basis of an information of the Sales Tax Department, Govt. of Maharashtra that the assessee is beneficiary of Hawala entries - G.P. addition made on account of alleged Hawala purchase - according to the ld. Pr.CIT, the assessment was finalized without carrying out any enquiries and no efforts were made to verify the purchases and hence, according to the ld. Pr.CIT, the assessment was found to be erroneous and prejudicial to the interests of the Revenue - assessee opted for the Direct Tax Dispute Resolution Scheme, 2016 (DTDRS) and have filed a petition which is pending for finalization - HELD THAT:- As the assessee had not only challenged the addition but also challenged the jurisdiction of the A.O.. Moreover, while considering the decision of Siddhartha Tubes Ltd. [2002 (5) TMI 220 - ITAT INDORE] we are of the view that once the order has been settled under DTDRS Scheme, 2016, not only the issue of G.P. addition is settled but also the challenge of the jurisdiction by the assessee is settled. Pr.CIT who himself has settled the dispute by issuing Form No. 5 in favour of the assessee thus in that eventuality, the same Pr.CIT is not expected to again invoke provisions of Section 263 of the Act in the given facts and circumstances of the case. Thus, we quash the proceedings initiated U/s 263 of the Act. Appeal of the assessee is allowed. Issues:Challenge to jurisdiction under Section 263 of the Income Tax Act, 1961 based on assessment order; Application of Direct Tax Dispute Resolution Scheme, 2016 in settling disputes; Invocation of Section 263 by Principal Commissioner of Income Tax (PCIT); Disallowance of expenses and gross profit addition in assessment; Interpretation of judicial pronouncements on Hawala purchases and change of opinion.Analysis:1. Challenge to Jurisdiction under Section 263:The appeal was filed by the assessee against the order of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The PCIT set aside the assessment order passed by the Assessing Officer (AO) under Section 143(3) r.w.s 147 of the Act, deeming it erroneous and prejudicial to revenue. The main grievance of the assessee was against the PCIT's order under Section 263.2. Direct Tax Dispute Resolution Scheme, 2016:The assessee opted for the Direct Tax Dispute Resolution Scheme, 2016 (DTDRS) to settle disputes pending before the CIT(A). The dispute between the assessee and the Revenue was finally settled by the PCIT issuing Form 5, providing immunity from further proceedings under the Income Tax Act or Wealth Tax. The DTDRS Scheme played a crucial role in the analysis of the case.3. Invocation of Section 263 by PCIT:The PCIT invoked Section 263 based on the assessment order passed by the AO, highlighting deficiencies in the assessment process, particularly related to purchases and gross profit addition. The PCIT's decision to set aside the AO's order was based on the assessment being deemed prejudicial to the interests of revenue.4. Disallowance of Expenses and Gross Profit Addition:The assessment order by the AO included a gross profit addition based on purchases deemed as bogus. The PCIT contended that the AO finalized the assessment without proper inquiries or verification of purchases, leading to the assessment being erroneous. The dispute centered around the treatment of expenses and gross profit addition in the assessment.5. Interpretation of Judicial Pronouncements:The assessee relied on various judicial pronouncements, including judgments from the Bombay High Court and Tribunal decisions, to support their contention that the PCIT's order under Section 263 was not justified. The case involved an analysis of legal precedents related to Hawala purchases, change of opinion, and the application of the DTDRS Scheme.6. Decision and Analysis by ITAT:The ITAT carefully considered the contentions of both parties and the material on record. It noted discrepancies in the assessment process and the application of the DTDRS Scheme by the PCIT. Referring to legal provisions and judicial decisions, including those from the Bombay High Court and Tribunal, the ITAT concluded that the PCIT's invocation of Section 263 was not appropriate. The ITAT quashed the proceedings initiated under Section 263, thereby allowing the appeal of the assessee.This detailed analysis provides insights into the key issues raised in the legal judgment, focusing on the challenges to jurisdiction, application of the DTDRS Scheme, invocation of Section 263, assessment discrepancies, and the interpretation of judicial pronouncements.