Tribunal invalidates tax assessment orders, quashes jurisdiction assumption under sections 40A(3) and 263.

The Tribunal held that the Principal Commissioner of Income Tax's order directing the Assessing Officer to redo the assessment under section 40A(3) for the A.Y. 2012-13 was invalid as it was based on the AO's proposal, quashing the order. Additionally, the Tribunal found the assumption of jurisdiction by the Principal Commissioner under section 263 to revise the assessment order was void as it was also based on the AO's proposal, leading to the quashing of that order as well. Consequently, the Tribunal allowed the appeals of the assessees, rendering the other grounds raised by the assessee moot.

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Issues:
- Validity of the order passed by the Ld.Pr.CIT directing the AO to redo the assessment under section 40A(3) of the Income Tax Act for the A.Y. 2012-13.
- Jurisdiction of the Ld.Pr.CIT to revise the assessment order passed by the AO under section 263 of the Act.

Analysis:

Issue 1: Validity of the order passed by the Ld.Pr.CIT
The appeals were filed by the assessees against the orders of the Principal Commissioner of Income Tax for the A.Y. 2012-13 and 2014-15. The Ld.Pr.CIT observed that the AO's order was erroneous and prejudicial to the revenue's interest as the cash payments made by the assessee towards the purchase of land violated section 40A(3) of the Act. The Ld.Pr.CIT directed the AO to disallow the entire amount of Rs.1,21,33,000 and tax the same for the A.Y. 2012-13. The assessee argued that the payments were due to business exigencies and were already considered by the AO. However, the Ld.Pr.CIT found the AO's analysis lacking and considered the assessment erroneous. The Tribunal held that the reopening of the case by the Ld.Pr.CIT based on the AO's proposal was not valid in law, quashing the Ld.Pr.CIT's order.

Issue 2: Jurisdiction of the Ld.Pr.CIT
The assessee raised an additional ground challenging the assumption of jurisdiction by the Ld.AO under section 153C, claiming the order passed under section 263 by the Ld.Pr.CIT was void. The Ld.AR argued that the proposal sent by the AO to revise the order was not legally valid. The Ld.DR supported the Ld.Pr.CIT's order. The Tribunal noted that the Ld.Pr.CIT directed the AO to revise the assessment order based on the AO's proposal. Quoting section 263 of the Act, the Tribunal found that the reopening of the case by the Ld.Pr.CIT was based on the AO's proposal, rendering it invalid in law. Consequently, the Tribunal quashed the Ld.Pr.CIT's order. As the additional ground was allowed, the other grounds raised by the assessee were deemed infructuous and not adjudicated.

In conclusion, the Tribunal allowed the appeals of the assessees, pronouncing the order on 19th October 2022.

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