2024 (11) TMI 310 - AT - Income Tax

Commissioner cannot invoke Section 263 revision powers on issues different from Section 147 reassessment basis

The ITAT Nagpur quashed a revision order passed under section 263, holding that the Commissioner cannot invoke revision powers on issues entirely ... Revision u/s 263 on issues which were never the subject- matter of the assessment in a proceeding initiated under section 147 - HELD THAT:- We find that the issues on which re–assessment order was passed under section 143(3) r/w section 147 of the Act and the issues on which revision order passed under section 263 of the Act are entirely different. The assessee had filed Paper Books containing documents filed during re–assessment proceedings under section 147 and revision proceedings under section 263. We also find that during the re–assessment proceedings, a notice dated 10/12/2021 under section 142(1) was issued along with a questionnaire. The assessee furnished reply along adducing documentary evidences exhibited. Thus, we find merit in the submission of assessee that the Assessing Officer had made the enquiry during re-assessment proceedings in line with the reasons recorded and after verification had accepted the returned income of the assessee. Thus, no additions were made based on the reasons recorded. Assessing Officer was prohibited from making additions in respect of other issues which were not part of reasons recorded. Thus when no addition is made on account of grounds of re–opening. There is no scope to make any other addition. Section 263 does not empower indirectly to circumvent the provision by directing to make an enquiry on some other independent issue. DR is incorrect to invoke Explanation 3 to section 149 of the Act. In view of the aforesaid discussions, we are of the considered opinion that the impugned order passed by the learned Commissioner is bad–in–law and is hereby quashed. Therefore, ground of appeal no.2, stands allowed. AY 2017–18 - We find that in the present facts and circumstances, the legal maxim 'sublatofundamentocaditopus' is applicable, meaning thereby – 'a foundation being removed, the superstructure falls'. Once the basis of a proceeding is gone, the action taken thereon would fall to the ground. If initial action is not in consonance with law, all subsequent proceedings would fail as illegality strikes at the root. Thus, in the absence of valid foundation, exercise of a suo motu power is impermissible. It should not be presumed that initiation of power under suo motu revision is merely an administrative act. It is an act of a quasi judicial authority and based on formation of an opinion with regard to existence of adequate material to satisfy that the decision taken by the Assessing Officer is erroneous as well as prejudicial to the interests of the revenue. Revision of order passed by learned Assessing Officer under section 147 r/w section 143(3) by the learned Commissioner under section 263 being not as per mandate of law could not be sustained and is liable to be struck down. Issues Involved:1. Whether the Principal Commissioner of Income Tax (Pr.CIT) erred in concluding that the assessment order was erroneous and prejudicial to the interests of the revenue.2. Whether the Pr.CIT erred in assuming jurisdiction under section 263 of the Income Tax Act on issues not subject to the original assessment.3. Whether the period of limitation for section 263 should commence from the date of the original assessment order under section 143(1) and not from the reassessment order under section 147.4. Whether the Pr.CIT failed to conduct an enquiry and verification to establish that the assessment order was unsustainable.5. Whether the Pr.CIT's actions were contrary to the law as interpreted by the courts.Detailed Analysis:1. Erroneous and Prejudicial Assessment Order:The Pr.CIT concluded that the assessment order was erroneous and prejudicial to the interests of the revenue, leading to its revision under section 263. The assessee contended that the issues leading to the reopening under section 147 were different from those forming the basis of the revision under section 263. The Assessing Officer (AO) had examined the issues in line with the reasons recorded and accepted the return of income. The Pr.CIT revised the assessment on other issues not part of the original reasons, which the assessee argued was not permissible. The Tribunal found merit in the assessee's argument, noting that the AO had made inquiries and accepted the return, thus the order was neither erroneous nor prejudicial.2. Jurisdiction under Section 263:The Tribunal examined whether the Pr.CIT erred in assuming jurisdiction under section 263 for issues not part of the original assessment under section 147. The Tribunal noted that the issues on which the order was revised were entirely different from those on which the reassessment was based. Citing precedents, the Tribunal held that if the AO does not make additions based on the reasons recorded for reopening, they cannot make additions on other issues. The Tribunal concluded that the Pr.CIT could not revise the assessment on issues not part of the original assessment, thus quashing the order under section 263.3. Period of Limitation:The Tribunal addressed whether the limitation period for section 263 should commence from the date of the original assessment order under section 143(1) rather than the reassessment order under section 147. The Tribunal found that the revision under section 263 was sought on issues other than those which were the subject of the reassessment. Therefore, the limitation period should be reckoned from the date of the original order under section 143(1), rendering the revision order time-barred.4. Failure to Conduct Enquiry:The Tribunal considered whether the Pr.CIT failed to conduct an enquiry and verification to establish that the assessment order was unsustainable. The assessee argued that the Pr.CIT did not make any enquiry and simply directed the AO to conduct further verification. The Tribunal noted that the Pr.CIT must undertake a minimal enquiry to conclude that the order was erroneous and prejudicial. The failure to do so rendered the revision order bad in law.5. Interpretation of Law:Regarding the interpretation of law, the assessee contended that Explanation 2 to section 263 did not override judicial interpretations requiring the Pr.CIT to establish the unsustainability of the assessment order. The Tribunal, agreeing with the assessee, held that the Pr.CIT's actions were not in line with judicial precedents, thus the order under section 263 could not be sustained.Conclusion:The Tribunal allowed the appeals for both assessment years, finding that the Pr.CIT's assumption of jurisdiction under section 263 was erroneous and that the orders were unsustainable. The Tribunal emphasized that the issues on which the assessment was revised were not part of the original assessment, and the limitation period for revision had expired. The Tribunal's decision was based on established judicial principles, rendering the revision orders quashed.