S.263 revision order invalid where reassessment under faulty reopening lacked matching reasons and was not validly passed

The HC held that the suo motu revisional order under s.263 by the PCIT was invalid because it was founded on a reassessment order that itself was not validly passed; where reasons recorded for reopening differed from reasons supplied to the assessee, the reassessment was defective and any subsequent revision based on it must fail. The Court found no substantial question of law arising from the ITAT's decision and declined to frame the questions of law sought by the Revenue.

---

---

Issues Involved:

1. Validity of reassessment proceedings u/s 147 of the Income Tax Act.
2. Validity of the revisional order passed by the Principal Commissioner of Income Tax (PCIT) u/s 263 of the Income Tax Act.

Summary:

1. Validity of reassessment proceedings u/s 147 of the Income Tax Act:

The present appeals filed by the Revenue are directed against the common order dated 18th August, 2022 passed by the Income Tax Appellate Tribunal (ITAT), Cuttack Bench, Cuttack in ITA Nos.72-75/CTK/2021 filed by the Assessees for the Assessment Years (AYs) 2013-14.

The ITAT allowed the aforementioned appeals of the Assessees thereby setting aside an order dated 23rd March, 2021 passed by the Principal Commissioner of Income Tax (PCIT), Sambalpur u/s 263 of the Income Tax Act, 1961 (Act) holding the original assessment order dated 28th December, 2018 of the Assessing Officer (AO) to be erroneous and prejudicial to the interests of the Revenue.

The Assessee filed its return of income for the AY 2013-14 on 25th November, 2013 after claiming Long Term Capital Gains (LTCG) u/s 10(38) of the Act. The AO gathered information that the Assessee had shown the LTCG out of the share transaction of a Kolkata based company, M/s. Tuni Textile Mills Ltd. (TTML) and that the price of such shares had increased by more than 768% from the cost of acquisition within a span of a little more than one year.

Alleging that the Assessee had taken an accommodation entry in the form of bogus LTCG and that TTML was a sham company, the AO reopened the assessment by issuing notice dated 30th March, 2018 to the Assessee u/s 148 of the Act.

The Assessee filed a return of income this time offering the net consideration from the sale of shares for taxation under the head Short-Term Capital Gains (STCG) in lieu of LTCG shown in the original return. The AO passed an assessment order u/s 143 (3) read with Section 147 of the Act on 28th December, 2018 accepting the revised income as disclosed in the return and accordingly raising a demand. The Assessee accepted the above assessment order by not challenging it further in appeal.

The ITAT took up for consideration one ground, viz., whether the reassessment proceedings were themselves invalid since the reasons recorded in the file for reopening and the reasons supplied to the Assessee were different. It was contended on behalf of the Revenue that the validity of the re-assessment order cannot be challenged by the Assessee in an appeal filed by it against the revisional order u/s 263 of the Act.

Following the decision of the Kolkata Bench of the ITAT dated 5th April, 2017 in ITA Nos.764-766/Kol/2014 (Classic Flour & Food Processing Pvt. Ltd. v. CIT) and other orders of the coordinated benches of both Kolkata and Delhi, the ITAT negatived the above plea of the Revenue.

The ITAT held that the copy of the reasons recorded by the AO on 26.03.2018 in the order sheet and the copy of the reasons supplied to the assessee are different and there is no date in the copy of the reasons supplied to the assessee by the Department which clearly show that the AO has not supplied the actual reasons recorded by him in the order sheet to the assessee. Therefore, the validity of initiation of reassessment proceedings u/s 147 of the Act and consequent reassessment order is not sustainable.

The ITAT, Delhi Bench in the case of Jansampark Advertising & Marketing Pvt. Ltd. (supra) decided a similar issue by referring to the order of the ITAT Delhi in the case of Wimco Seedlings Ltd. vs. JCIT, dated 2.06.2020 in ITAs No.2755, 2756, 2757/Del/2002.

The Court is entirely in agreement with the above conclusion of the ITAT which is based on the decisions of the High Courts and the Supreme Court of India.

Indeed, if the original re-assessment order itself was not validly passed, the subsequent revisional order by the PCIT was required to be held invalid.

2. Validity of the revisional order passed by the Principal Commissioner of Income Tax (PCIT) u/s 263 of the Income Tax Act:

The PCIT, Sambalpur exercised the suo motu revisional power u/s 263(1) of the Act and an order was passed on 23rd March, 2021 directing the AO to add an entire amount of Rs.29,49,800/- u/s 68 read with Section 115BBE of the Act.

Aggrieved by the above order, the Assessee filed an appeal before the ITAT. The ITAT held that the reassessment proceedings were invalid, and therefore, the revisional order by the PCIT was also invalid.

No substantial question of law arises from the impugned order of the ITAT. The Court is therefore not inclined to frame the questions of law as urged by the Revenue in the present appeals. It will be noted here that in Para-19 of the impugned order of the ITAT, the Revenue has not disputed that the connected appeals raised similar issues.

The appeals are accordingly dismissed in the above terms.

---