2023 (12) TMI 1364 - HC - Income Tax

Tax appeal dismissed as assessee used technical grounds to avoid reconciling balance sheet discrepancies under section 263

M/s. L.A. Developers, Bhubaneswar Versus Commissioner of Income Tax-1, Bhubaneswar and Ors.

HC dismissed the tax appeal where assessee challenged revision u/s 263 regarding discrepancies between balance sheet and cash flow statement figures. ... Validity of Revision u/s 263 - substantial question of law or fact - there were discrepancies in the figure with regard to value of current assets and current liabilities shown in the balance sheet as on 31.03.2008 vis-à-vis the cash flow statement filed before the AO - Whether question of law admitted by this Court may not be treated as the substantial question of law as the ITAT has already answered the query of the appellant and the issue of difference in balance sheet and cash flow are factual issues which have already been considered by the revisional authority under the ambit of Section 263? HELD THAT:- CIT(A) has dismissed the appeal exparte. Appeal had been filed before the Tribunal and the Tribunal had exparte restored the issue back to the file of CIT(A). CIT(A) also dismissed the appeal for non-compliance. Tribunal in the interest of natural justice had restored the issue to the file of the CIT(A) so that the, assessee could be granted the opportunity to substantiate its case. This clearly shows that the assessee is not interested in showing the reconciliation but is attempting to use technical reasons to avoid the responsibility. This scathing remark from the ITAT showcases the triviality of the matter at hand. Additionally, the submissions made with regard to the section 255 of the Act showcases the intention of the petitioner to delay the case. While scrutinizing the documents at hand, it is clear that due compliance has been made with respect to the reassessment proceedings and all the subsequent appeals. Additionally, the petitioner has been provided with the regular chances to submit his representation. However, the petitioner has been delaying the same. The submission of the petitioner cannot be entertained. ITA is hereby dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Tribunal erred in dismissing the appeal without awaiting any notification under newly inserted section 255(7)-(9) of the Act, when the appellant sought adjournment pending such notification. 2. Whether the Commissioner was justified in invoking revisionary powers under section 263 of the Act on the ground that the Assessing Officer (AO) passed an order that was erroneous and prejudicial to the revenue by failing to examine or form an opinion on discrepancies between the balance sheet and cash flow statement. 3. Whether there was a breach of principles of natural justice or procedural infirmity in the reassessment/revision proceedings and in the appellate process (including ex parte dismissals and subsequent restorations), sufficient to vitiate the orders impugned. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of invoking section 255(7)-(9) argument to seek adjournment of appellate proceedings Legal framework: Section 255(7)-(9) (as inserted by Finance Act, 2021) permits the Central Government to make a scheme for disposal of appeals by the Appellate Tribunal, and section 255(8) permits directions by notification that specified provisions of the Act may not apply to such scheme; section 255(9) requires lay before Parliament. The provisions permit future administrative reorganisation but require an express notification/direction to take effect as envisaged by section 255(8). Precedent Treatment: No earlier judicial authority was relied upon or applied in the judgment to alter or qualify the statutory text; the Court considered the statutory provisions on their face. Interpretation and reasoning: The Court treats section 255 scheme provisions as enabling powers of the Central Government that require specific notification/direction under section 255(8) to alter applicability of other provisions. The Court found no existing notification/direction in force relevant to the present appeal, and observed that the appellant's invocation of section 255 to obtain an adjournment was an attempt to delay proceedings rather than a bona fide legal impediment. The Court therefore considered the section 255 argument immaterial in the absence of any operable notification. Ratio vs. Obiter: Ratio - where no notification under section 255(8) has been issued, a party cannot defer appellate proceedings or defeat tribunals' jurisdiction on the ground that a future scheme may alter procedural applicability. Obiter - comments that invocation of section 255 to delay proceedings is improper are factual observations specific to appellant's conduct. Conclusions: The Court rejects the contention that appellate proceedings must be stayed or adjourned pending a notification under section 255; absence of any notification renders the submission legally irrelevant and dilatory. Issue 2 - Legitimacy of exercise of revisional power under section 263 by the Commissioner Legal framework: Section 263 empowers the Commissioner to call for and examine records of any proceeding and, if he considers any order of the AO erroneous in so far as it is prejudicial to the interests of the revenue, to pass such order as circumstances justify (including cancellation and de novo assessment), provided the assessee is given an opportunity of being heard. Explanation 2 clarifies circumstances in which an AO's order will be deemed erroneous - e.g., where the order is passed without required inquiries or verification or without inquiring into claims. Precedent Treatment: No specific precedent was cited or distinguished; the Court applied the statutory tests under section 263 to the facts. Interpretation and reasoning: The Court accepted the revisional authority's conclusion that the AO had failed to consider glaring discrepancies between figures in the balance sheet and the cash flow statement available on record, and had not applied his mind to those materials or formed an opinion thereon. The revisional authority had issued show-cause, considered the assessee's submissions, and directed de novo assessment after giving opportunity to the assessee. The Tribunal's finding that the AO did not examine available information and therefore his order was erroneous and prejudicial to revenue was treated as a permissible application of section 263. Ratio vs. Obiter: Ratio - where the AO has not made inquiries or verification that should have been made, or has failed to form an opinion on material discrepancies apparent on record, the Commissioner is entitled to exercise powers under section 263 to revise or direct fresh assessment. Obiter - observations about the triviality of the appellant's technical objections and their characterization as attempts to avoid responsibility pertain to facts of the case. Conclusions: The Court upholds the exercise of revisionary power under section 263, finding that the AO's failure to examine and form an opinion on material, readily available discrepancies rendered his order erroneous and prejudicial to revenue; consequently the revisional order directing reassessment was valid. Issue 3 - Procedural fairness and appellate conduct: ex parte dismissals, restorations, and alleged denial of natural justice Legal framework: Principles of natural justice require that an assessee be given an opportunity to be heard before adverse orders under section 263 are passed; the appellate process must afford opportunities for representation and consideration of submissions. Tribunal has powers to restore matters for fresh consideration in interest of natural justice. Precedent Treatment: The Court relied on the record of proceedings and the Tribunal's remedial actions rather than external case law. Interpretation and reasoning: The Court noted that the Assessing Officer's order, the Commissioner's show-cause proceedings, and subsequent appellate steps included opportunities to the assessee to present its case. The record showed multiple chances and some earlier ex parte dismissals at lower fora, but the Tribunal had restored matters in the interest of natural justice to enable the assessee to substantiate its case. The Court concluded that the appellant thereafter sought dilatory tactics (including invoking section 255) rather than advancing substantive reconciliation of the accounts. The Tribunal's and Commissioner's procedures, including issuance of show-cause and opportunity to be heard, satisfied natural justice requirements; no procedural infirmity was demonstrated that would vitiate the revisional order. Ratio vs. Obiter: Ratio - absence of a demonstrated denial of opportunity to be heard or procedural irregularity renders the appellant's natural justice objections unsustainable. Obiter - characterizations of the appellant's conduct as delaying tactics are factual observations. Conclusions: The Court finds no violation of natural justice or procedural infirmity necessitating interference; the appellant's complaints about ex parte orders do not invalidate the revisional process as the tribunal provided restoration and the assessee failed to substantively reconcile discrepancies. Cross-Reference: Issues 1 and 3 are interrelated - the Court treats the section 255 invocation as a procedural delay tactic (Issue 1) and views the appellate and revisional procedures as having afforded requisite opportunities to the assessee (Issue 3); both findings support upholding the revision under section 263 (Issue 2). Final Disposition (legal conclusion): The Court dismisses the appellant's challenge; the Tribunal's dismissal and the Commissioner's revision under section 263 are sustained on the grounds that the AO did not make requisite inquiries or form an opinion on material discrepancies and that the section 255 argument was inapposite and dilatory in absence of any notification.