2025 (1) TMI 652 - AT - Income Tax

PCIT cannot use section 263 revision powers when same issue pending before CIT(A) on TDS matters

JKG Construction Private Limited Versus ITO, National E-Assessment Centre, Delhi

ITAT Delhi ruled in favor of the assessee, holding that PCIT cannot exercise revision powers under section 263 when the same issue is pending before ... Revision u/s 263 - PCIT jurisdiction to pass an order u/s 263 when the issue is already the subject matter of an appeal before the CIT(A) - addition in respect of unpaid TDS on the payment made to ECL Finance Ltd. - PCIT proposed to revise the order holding that the disallowance should have been at 30% of the total payment as per provisions of section 40(a)(ia) - HELD THAT:- When the entire issue of unpaid TDS is under dispute and subject matter of appeal before the CIT(Appeals) the Ld. PCIT is precluded from making any revision of assessment order since the issue is in appeal before the CIT(Appeals) and in such a situation the assessee would be covered under clause (c) of Explanation 1 to section 263 of the Act which puts a bar on initiation of proceedings u/s 263 of the Act when an appeal is pending before the Ld.CIT(A). Even otherwise also the powers of CIT(A) are co-terminus with those of the Assessing Officer and the Ld.CIT(A) can do what AO could do and can also direct the Assessing Officer to do what he has failed to do so. As decided in Smt. Renuka Philip [2018 (12) TMI 129 - MADRAS HIGH COURT] when the larger issue was pending before the Ld.CIT(A) and in such circumstances the Ld. CIT could not exercise powers u/s 263 of the Act on account of statutory bar. The Hon’ble High Court held that assumption of jurisdiction u/s 263 of the Act was wholly erroneous. Similar view has been taken in the case of Golden Vats Pvt. Ltd. [2024 (1) TMI 550 - ITAT CHENNAI] Hon’ble Madhya Pradesh High Court in the case of CIT vs. Shalimar Housing and Finance Ltd. [2009 (4) TMI 406 - MADHYA PRADESH HIGH COURT] the issue taken up by the Commissioner was already dealt with by Commissioner (Appeals) and the AO’s order merged with Commissioner (Appeals) and Commissioner is not competent to assume jurisdiction in terms of clause (c) of Explanation 1 of section 263 of the Act. Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions addressed in this judgment are:Whether the Principal Commissioner of Income Tax (PCIT) has the jurisdiction to pass an order under Section 263 of the Income Tax Act when the issue is already the subject matter of an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].Whether the PCIT's order under Section 263 is valid when the CIT(A) has co-terminus powers with the Assessing Officer (AO) and can address the issues raised in the appeal.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Jurisdiction of PCIT under Section 263Relevant legal framework and precedents: Section 263 of the Income Tax Act allows the PCIT to revise an order if it is erroneous and prejudicial to the interests of the Revenue. However, Explanation 1(c) to Section 263 precludes the PCIT from revising an order if the issue is already the subject of an appeal before the CIT(A).Court's interpretation and reasoning: The court noted that the issue of unpaid TDS on payments made to ECL Finance Ltd. was already under appeal before the CIT(A). Therefore, the PCIT was precluded from exercising jurisdiction under Section 263 due to the statutory bar imposed by Explanation 1(c).Key evidence and findings: The court observed that the assessee had filed Form No.35, which indicated that the issue was pending before the CIT(A). The court also considered precedents from the Allahabad High Court and the Chennai Bench of the Tribunal, which supported the assessee's position.Application of law to facts: By applying Explanation 1(c) of Section 263, the court concluded that the PCIT's order was beyond the scope of his powers since the issue was already under appeal.Treatment of competing arguments: While the Revenue supported the PCIT's order, the court found the assessee's reliance on legal precedents and statutory provisions more persuasive.Conclusions: The court concluded that the PCIT's assumption of jurisdiction under Section 263 was erroneous and without legal basis.Issue 2: Co-terminus powers of CIT(A)Relevant legal framework and precedents: The CIT(A) has powers co-terminus with the AO, meaning they can do what the AO could do and direct the AO to do what he failed to do.Court's interpretation and reasoning: The court emphasized that since the CIT(A) was already handling the issue, the PCIT's intervention was unnecessary and legally impermissible.Key evidence and findings: The court referred to the decision of the Madras High Court in the case of Smt. Renuka Philip vs. ITO, which underscored the statutory bar on the PCIT's jurisdiction when the issue is pending before the CIT(A).Application of law to facts: The court applied the principle of co-terminus powers to determine that the CIT(A) was competent to address the issues, rendering the PCIT's order redundant.Treatment of competing arguments: The court found that the assessee's argument regarding the CIT(A)'s powers was supported by legal precedents, whereas the Revenue's arguments lacked sufficient legal backing.Conclusions: The court concluded that the CIT(A) was the appropriate authority to handle the issue, and the PCIT's order was invalid.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:'The above explanation makes it clear that when the appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act is barred.'Core principles established:The PCIT cannot assume jurisdiction under Section 263 when the issue is already the subject of an appeal before the CIT(A).The CIT(A) possesses co-terminus powers with the AO, and thus, issues pending before the CIT(A) should not be revised by the PCIT.Final determinations on each issue:The court quashed the PCIT's order under Section 263, as it was passed without jurisdiction.The appeal filed by the assessee was allowed, reinforcing the statutory bar on the PCIT's powers in such circumstances.