2022 (11) TMI 582 - AT - Income Tax

Appellate Tribunal overturns Commissioner's tax order, highlights need for clear justification

The Appellate Tribunal set aside the Principal Commissioner of Income Tax's revisionary order under section 263 of the Act, ruling that the Commissioner ... Revision u/s 263 by CIT - as per CIT, no enquiry of large agricultural income and non-verification of unsecured loans taken during the year done - case of the assessee was also selected for limited scrutiny under CASS on these issues and AO after raising specific quarries from the assessee in the notice issued u/s 142(1) - HELD THAT:- AO had issued notices u/s 133(6) on all these parties had duly responded to the said notices by filing ITRs, bank statements, confirmations, and audited annual accounts evidencing the said payments. Therefore we have matetrials before us on the basis of which we reasonable believe that the observations of the Ld. PCIT that the AO has not examined the issues and no notices u/s 133(6) were issued to the lenders is wrong and against the facts on record. We also note that the PCIT has failed to demonstrate as to how the assessment order was erroneous and prejudicial to the interest of the revenue as no relevant findings has not recorded by the PCIT showing that the assessment framed is erroneous as well as prejudicial to the interest of the revenue. As decided in M/s Bengal United Credit Belani Housing Ltd [2022 (4) TMI 1465 - CALCUTTA HIGH COURT] and J.K. Tyre & Industries Ltd [2022 (11) TMI 486 - CALCUTTA HIGH COURT] PCIT has to record reasons justifying the invoking of jurisdiction u/s 263 of the Act as to how the assessment order is erroneous and prejudicial to the interest of the revenue. In absence of which the assumption of jurisdiction u/s 263 is not sustainable under the Act. We therefore respectfully following set aside the order passed u/s 263 of the Act by ld. PCIT on the ground of invalid jurisdiction. Appeal of the assessee is allowed. Issues:1. Validity of revisionary jurisdiction exercised by Ld. PCIT under section 263 of the Act.Detailed Analysis:The appeal before the Appellate Tribunal ITAT Kolkata involved a challenge by the assessee against the order of the Ld. Principal Commissioner of Income Tax (Appeals)-2, Kolkata for the assessment year 2015-16. The Registry noted that the appeal was seemingly time-barred, but it was clarified that the period of filing appeal during the COVID-19 pandemic should be excluded for counting the limitation period, thus treating the appeal as filed within the limitation period.The primary issue raised by the assessee pertained to the exercise of revisionary jurisdiction under section 263 of the Act by the Ld. PCIT. The Ld. PCIT revised the assessment conducted by the Assessing Officer (AO) after concluding that the AO had failed to conduct proper enquiry on certain issues selected for limited scrutiny. Specifically, the Ld. PCIT found that the AO did not adequately investigate large agricultural income, unsecured loans from parties who had not filed their income tax returns, and a mismatch in amounts paid to related persons under section 40A(2)(b).The assessee contended that all the issues were thoroughly examined by the AO during the assessment proceedings. The Ld. A.R. highlighted that the AO had called for explanations, issued notices under relevant sections, and considered detailed submissions from the assessee before accepting the contentions and making no additions. The assessee argued that the Ld. PCIT's revisionary order was based on incorrect observations and lacked independent findings justifying the exercise of revisionary jurisdiction under section 263 of the Act.In its analysis, the Appellate Tribunal noted that the Ld. PCIT had not adequately demonstrated how the assessment order was erroneous and prejudicial to the revenue's interest. The Tribunal observed that the AO had indeed examined the issues, issued necessary notices, and received responses from concerned parties, thereby refuting the Ld. PCIT's assertions. Relying on relevant judicial decisions, the Tribunal concluded that the Ld. PCIT had failed to provide sufficient reasons justifying the invocation of jurisdiction under section 263, leading to the setting aside of the Ld. PCIT's order on grounds of invalid jurisdiction.Ultimately, the Appellate Tribunal allowed the appeal of the assessee, emphasizing the importance of recording appropriate reasons to support the exercise of revisionary jurisdiction under the Act. The Tribunal's decision was based on the principles established in previous judgments of the Hon'ble Jurisdictional High Court, highlighting the necessity for clear justifications when invoking section 263 of the Act.