2024 (12) TMI 633 - AT - Income Tax

CIT(E) order under Section 263 quashed for invalid notice service violating natural justice principles

Saraswati Educational Society Regd. C/o M/s Raj Kumar & Associates Versus CIT Exemption Delhi

The ITAT Delhi quashed the CIT(E)'s order under Section 263 due to invalid service of notice. The notice was served on the assessee only after the hearing ... Validity of Revision proceedings u/s 263 - as alleged no valid service of notice which was issued and served on the Assessee - Limitation Period - HELD THAT:- In the present case, there is no legal and valid service of notice which was issued and served on the Assessee in either of the mode of RPID and ITBA/email to the Assessee which were adopted by the CIT(E). The notices were served only after the date of hearing i.e. on 14/03/2024, thus the order of the CIT(E) passed on 29/03/2024 is not only erroneous but also in violation of principles of natural justice. The provision of Section 263(2) of the Act specifically bars for any order being passed pursing to the notice u/s 263 of the Act after lapse of two years from the end of Financial Year in which the orders sought to be revised was passed. Considering the fact that the outer limit in the statute u/s 263 which in the present case being 31-03-2024, we find no useful purpose will be served in giving opportunity to the Assessee of being heard in this stage by the Ld. CIT(E). By relying on the judgment of M L Chains [2023 (8) TMI 830 - ALLAHABAD HIGH COURT] and Tulsi Tracom (P) Ltd. [2017 (9) TMI 1041 - DELHI HIGH COURT] - order passed by the CIT(E) u/s 263 quashed - Decided in favour of assessee. Issues Involved:1. Invocation of Section 263 of the Income Tax Act and setting aside the assessment order.2. Service of Show Cause Notice (SCN) and principles of natural justice.3. Allegations of non-application of mind by the CIT(E) in the order under Section 263.4. Examination of loans and interest issues under Sections 11 and 12 of the Income Tax Act.5. Admissibility of loan processing fees and insurance charges.6. Allowability of depreciation for assets purchased in earlier years.7. Validity of the entire assessment being set aside for a de-novo assessment.8. Defects in the SCN concerning Document Identification Number (DIN) compliance.Detailed Analysis:1. Invocation of Section 263 of the Income Tax Act:The CIT(E) invoked Section 263, asserting that the AO failed to make requisite verification and inquiries on certain issues, leading to discrepancies in the assessment order. The CIT(E) set aside the assessment order, directing a de-novo assessment. The Tribunal found that the invocation of Section 263 was unsustainable due to procedural lapses, particularly the improper service of notice, which violated principles of natural justice.2. Service of Show Cause Notice (SCN) and Principles of Natural Justice:The Assessee argued that the SCN was served after the hearing date, denying them the opportunity to be heard, thus violating the principles of natural justice. The Tribunal noted that the SCN was dispatched to the postal authorities after the scheduled hearing date and was received by the Assessee post the hearing date. Additionally, the SCN sent via ITBA and email was uploaded after the order was passed. The Tribunal, citing precedents, held that the lack of proper service rendered the order void ab initio.3. Allegations of Non-Application of Mind by the CIT(E):The Assessee contended that the CIT(E) did not carefully review the assessment order and made incorrect assumptions about exemptions under Sections 11 and 12. The Tribunal did not delve into this issue extensively, as it quashed the order based on procedural grounds.4. Examination of Loans and Interest Issues:The CIT(E) opined that a loan of Rs. 1,20,90,501/- should have been disallowed and added back to the total income, alleging violations of Section 11(5). Similarly, the admissibility of interest on loans was questioned. However, since the exemption under Sections 11 and 12 was not allowed by the AO, these issues did not survive for further examination. The Tribunal did not adjudicate these matters due to the quashing of the order on procedural grounds.5. Admissibility of Loan Processing Fees and Insurance Charges:The CIT(E) held that the AO failed to examine the admissibility of loan processing fees and insurance charges, suggesting they were not utilized for charitable purposes. As with the loan and interest issues, these matters were not adjudicated by the Tribunal due to the procedural quashing of the order.6. Allowability of Depreciation for Assets Purchased in Earlier Years:The CIT(E) questioned the allowability of depreciation for assets purchased in earlier years, alleging a lack of inquiry by the AO. The Tribunal did not address this issue on merits due to the procedural quashing of the order.7. Validity of the Entire Assessment Being Set Aside:The Assessee argued that even if Section 263 was invoked, setting aside the entire assessment for a de-novo assessment was unwarranted. The Tribunal did not adjudicate on this argument as it quashed the order based on procedural deficiencies.8. Defects in the SCN Concerning DIN Compliance:The Assessee highlighted the lack of a Document Identification Number (DIN) on the SCN, alleging non-compliance with CBDT circulars. The Tribunal did not specifically address this issue, focusing instead on the improper service of notice.Conclusion:The Tribunal quashed the order under Section 263 due to improper service of the SCN, which violated principles of natural justice. Consequently, the Tribunal did not address other substantive issues raised in the appeal. The appeal was allowed, and the order of the CIT(E) was set aside.