2022 (12) TMI 785 - AT - Income Tax

Tribunal rules PCIT lacked jurisdiction to issue notice under Section 263

Chaman Vatika School Versus Pr. CIT (Exemption), Chandigarh

Chaman Vatika School Versus Pr. CIT (Exemption), Chandigarh - TMI Issues Involved1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) to issue notice under Section 263 of the Income Tax Act, 1961.2. Adequacy of the Assessing Officer's (AO) inquiry during the original assessment proceedings.3. Verification of the use of the car for the purposes of the school.4. Reliance on audit objections for assuming jurisdiction.5. Applicability of judgments relied upon by the PCIT.Detailed Analysis1. Jurisdiction of the PCIT to Issue Notice under Section 263The assessee challenged the jurisdiction of the PCIT (Central), Ludhiana, to issue a notice under Section 263 of the Income Tax Act, 1961. The PCIT had canceled the assessment framed by the AO and directed a fresh assessment. The tribunal found that the PCIT's assumption of jurisdiction was not justified as the AO had already conducted a thorough inquiry during the original assessment proceedings.2. Adequacy of the AO's InquiryThe assessee argued that the AO had considered various replies and documents during the assessment proceedings, including the addition of fixed assets and the purchase of a new vehicle. The tribunal noted that the AO had indeed verified the records and accepted the assessee's submissions. The tribunal found that the PCIT's claim that no inquiry was made by the AO was factually incorrect.3. Verification of the Use of the CarThe PCIT had set aside the issue for verification of the use of the car, which was registered in the name of the society's chairman. The tribunal found that the AO had already examined this issue during the assessment proceedings. The tribunal noted that the vehicle was used exclusively for official activities and not for personal use. The tribunal also referenced the decision of the Bombay High Court in CIT v. Dilip Singh Sardarsingh Bagga, which held that registration under the Motor Vehicles Act is not essential for determining ownership.4. Reliance on Audit ObjectionsThe assessee contended that the PCIT assumed jurisdiction based on audit objections, which is void-ab-initio as per the binding judgment of the Jurisdictional High Court in the case of Sohana Woollen Mills. The tribunal found merit in this argument and noted that the PCIT's reliance on audit objections was not justified.5. Applicability of Judgments Relied Upon by the PCITThe assessee argued that the judgments relied upon by the PCIT were not applicable to the facts and circumstances of the case. The tribunal agreed with the assessee and found that the PCIT had not properly considered the replies filed during the proceedings.ConclusionThe tribunal concluded that there was no justifiable basis for invoking the provisions of Section 263 as the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The tribunal set aside the order passed by the PCIT and sustained the original assessment order by the AO. The appeal of the assessee was allowed.OrderThe appeal of the assessee is allowed, and the order pronounced in the open Court on 06/12/2022.