2024 (4) TMI 142 - HC - Income Tax

PCIT can exercise revision powers under Section 264 even when CPC processes returns as JAO retains jurisdiction

Bombay HC quashed PCIT's order rejecting revision application under Section 264 on grounds that DCIT, CPC was not subordinate to PCIT. Court held that CPC ... Jurisdiction to entertain petitioner’s Revision application u/s 264 - application came to be rejected by PCIT – 5, Mumbai on the ground that Deputy Commissioner of Income Tax (DCIT), CPC is not reporting to the PCIT – 1, Mumbai. According to PCIT – 5, PCIT – 1, Mumbai can neither exercise any kind of monitoring of the work of DCIT, CPC nor can issue any directions to him. Therefore, he cannot be treated as subordinate to PCIT – 1 HELD THAT:- Petitioner as submitted, and rightly so, that u/s 143(1) (A) the Board has formulated a scheme for centralised processing of returns with a view to expeditiously determining the tax payable by, or a refund due to, assessee as required under Sub Section (1) of the Act. CBDT had also notified a scheme on 4th January 2012 in exercise of the powers conferred by Sub Section 1(A) of Section 143 of the Act. We agree with Petitioner that the CPC only acts as a facilitator to the Jurisdictional Assessing Officer (JAO) who holds jurisdiction over assessee u/s 120 of the Act. Merely because the return is processed by CPC, the regular jurisdiction of the JAO is not curtailed and he continues to hold the same jurisdiction. This is evident from the fact that a demand resulting from the processing of a return under Section 143(1) of the Act by CPC is also enforced by the JAO. It is JAO who issues a notice u/s 143 (2) of the Act if the return is to be selected for scrutiny and frames the assessment. We would also add that even under the faceless regime, once the assessment has been framed by the Faceless Assessing Officer (FAO), all records are transferred to the JAO for recovery of demand and other incidental matters. In fact in many matters before us PCIT have exercised jurisdiction in identical situation. Therefore, for Respondent No. 1 to say that he will have no jurisdiction to entertain petitioner’s application u/s 264 of the Act because the DCIT, CPC is not reporting to him is not correct. CBDT has issued directions on 18th September 2020 (F No. 187/3/2020-ITA-1) in which it is noted that the power under Section 263 and 264 will be exercised by the Jurisdictional Principal Commissioners of Income Tax concerned. Therefore, certainly if the powers can be exercised by the Jurisdictional Principal Commissioners of Income Tax and the faceless regime, certainly it only confirms our view expressed above that CPC only acts as a facilitator to the JAO and merely because the return is processed by CPC the regular jurisdiction of the JAO is not curtailed and he continues to hold the jurisdiction. Since we have already expressed our view that the JAO will have jurisdiction, we hereby quash and set aside the impugned order. Respondent No. 1 – PCIT – 5 is directed to dispose petitioner’s application under Section 264 of the Act in accordance with law. Issues involved: Impugning an order u/s 264 of the Income Tax Act, 1961 regarding denial of set off of unabsorbed business loss against long term capital gain.Summary:1. The petitioner challenged an order passed by the Principal Commissioner of Income Tax -5 (PCIT-5) u/s 264 of the Income Tax Act, 1961.2. The petitioner filed a return of income for Assessment Year 2016-17, which was later processed under Section 143(1) of the Act, resulting in a difference in the assessed income due to the denial of set off of unabsorbed business loss against long term capital gain.3. A Rectification Application u/s 154 was filed by the assessee, which was not accepted by the Centralized Processing Center (CPC), leading to the filing of an application u/s 264 of the Act.4. The application u/s 264 was rejected by PCIT-5, Mumbai, citing jurisdictional issues regarding reporting relationships within the Income Tax department.5. The petitioner argued that the CPC acts as a facilitator to the Jurisdictional Assessing Officer (JAO) and does not curtail the regular jurisdiction of the JAO.6. The High Court agreed with the petitioner's stance, emphasizing that the JAO retains jurisdiction even in faceless assessment scenarios.7. The Court ruled that PCIT-5's claim of lacking jurisdiction to entertain the petitioner's application u/s 264 due to reporting structures was incorrect.8. An affidavit was filed justifying PCIT-5's decision, but the Court criticized the lack of clarity on which PCIT would have jurisdiction.9. The CBDT's directions confirmed that powers u/s 263 and 264 of the Act are to be exercised by the Jurisdictional Principal Commissioners of Income Tax, supporting the Court's view on jurisdiction.10. The Court quashed the impugned order and directed PCIT-5 to dispose of the petitioner's application u/s 264 in accordance with the law, ensuring a personal hearing for the petitioner.11. The issue of jurisdiction and delay were instructed not to be raised, and the application was to be decided on merits by a specified date.12. The petition was disposed of by the Court.