2025 (5) TMI 1945 - AT - Income Tax

CIT's revision order invalid for addressing different issue than original reassessment under section 263

Barik Biswas Versus ACIT, CIRCLE-49 (1) & (2), Kolkata

ITAT Kolkata held that CIT's revision order u/s 263 was invalid as it addressed section 40A(3) violation regarding purchases, which differed from the ... Validity of Revision u/s 263 - order u/s 263 on an issue which was not subject matter of reassessment order - CIT Revising and setting aside the order u/s 143(3)/147 itself was bad in law HELD THAT:- Issue in the said reopening of assessment as recorded in the reasons to believe was with regard to cash deposited in the assessee’s bank account. Thereafter the CIT revised the said assessment order vide its revisionary order u/s 263 of the Act dated 20.11.2017, directing the ld. AO to pass the assessment afresh after examining the issue of violation of section 40A(3) of the Act with regard to purchases. We note that the issue on which the reopening was made vis a vis the issue on which the revisionary order was passed were two different issues and therefore, the assessment framed u/s 143(3)/147 dated 25.03.2016 is not amenable to revision u/s 263 as the issue on which the reopening was made was completely different. Therefore, we find merit in the contention of the assessee that the revisionary jurisdiction exercised by the ld. PCIT u/s 263 of the Act and the order passed consequently were bad in law - Decided in favour of assessee. Violation of Section 40A(3) for purchase of coal and bricks and u/s 40A(3) in respect of labour charges - cash payment exceeding the limit - HELD THAT:- As stated before us that the assessee was under the wrong notion that 40A(3) covers single payment in a day and not to a single party. It was also stated that the payments were made to the producers of bricks without the aid of power who were ignorant about the provisions of the law and therefore the same may be may be allowed. Similarly, in respect of labour payment also it was claimed that the payment to the labour was less than ₹ 20,000/- per person. AO and CIT(A) has not gone into the issues in depth and decided the issue on the basis of the ledgers copies. As assessee submitted that all the payments were made below the limit as specified in section 40A(3) of the Act. Accordingly, we restore the issue to the file of the ld. AO with a direction to examine the same on the basis of evidences which the assessee may produce during the set aside proceedings. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Appellate Tribunal (AT) in these appeals include:Whether the revisionary order passed under Section 263 of the Income-tax Act, 1961 (the Act), revising the assessment framed under Sections 143(3)/147 of the Act, is valid when the revisionary order itself is alleged to be bad in law.Whether a legal issue challenging the validity of a revisionary order under Section 263 can be raised for the first time before the Tribunal, even if not raised before lower authorities.Whether the revisionary jurisdiction under Section 263 can be exercised on an issue different from the one which was the subject matter of reassessment under Section 147.Whether the limitation period for passing a revisionary order under Section 263 is to be reckoned from the date of the original assessment order under Section 143(1) or the reassessment order under Section 143(3)/147.Whether additions made under Section 40A(3) of the Act for alleged cash payments exceeding prescribed limits are justified based on the facts and evidence.Whether unexplained cash credits under Section 68 and disallowances under Section 40A(3) can be confirmed when the assessee fails to respond to notices and delays filing appeals.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the Revisionary Order under Section 263 of the ActRelevant Legal Framework and Precedents: Section 263 of the Act empowers the Commissioner of Income Tax (CIT) to revise an order passed by an Assessing Officer (AO) if it is found to be erroneous and prejudicial to the interests of the Revenue. However, the scope of revisionary jurisdiction is limited to the order passed and cannot be exercised on grounds or issues not subject matter of the original order. The limitation period for passing revisionary orders is also a crucial consideration. The Supreme Court decisions in CIT vs. Alagendran Finance Ltd. (2007) 293 ITR 1 (SC), Jute Corporation of India Ltd. vs. CIT, and National Thermal Power Co. Ltd. vs. CIT provide guiding principles on the exercise of revisionary jurisdiction and limitation.Court's Interpretation and Reasoning: The Tribunal found that the issue on which the assessment was reopened under Section 147 was the cash deposits in the assessee's bank account. However, the revisionary order under Section 263 was passed on the ground that the AO failed to examine the genuineness of cash purchases and possible violation of Section 40A(3) regarding payments exceeding Rs. 20,000. Thus, the revisionary order raised an issue different from the reassessment issue. The Tribunal held that revisionary jurisdiction cannot be exercised on an issue not subject matter of the reassessment order. Further, the limitation for passing the revisionary order was considered to have expired if reckoned from the original assessment order under Section 143(1).Key Evidence and Findings: The reasons recorded for reopening under Section 147 related solely to cash deposits, whereas the revisionary order focused on cash purchases and Section 40A(3) violations. The Tribunal noted that the AO had accepted the returned income after reassessment, and the revisionary order was passed subsequently. The Tribunal relied on the Apex Court decision in CIT vs. Alagendran Finance Ltd. and High Court decisions in Lark Chemicals Ltd. and Keshab Narayan Banerjee vs. CIT to support the conclusion that revisionary jurisdiction cannot be exercised on a different issue and beyond limitation.Application of Law to Facts: The Tribunal applied the principle that the revisionary order must relate to the same issue as the original order and must be passed within the prescribed limitation period. Since the revisionary order was on a different issue and was time-barred, it was held to be invalid and a nullity. Consequently, all subsequent proceedings based on this revisionary order were also invalid.Treatment of Competing Arguments: The Revenue argued that the revisionary order was valid and should be upheld. However, the Tribunal rejected this, emphasizing the legal principle that revisionary jurisdiction cannot be exercised on issues not before the AO in reassessment and that limitation is to be reckoned from the original order. The Tribunal also held that the assessee was entitled to raise this legal issue for the first time before the Tribunal, relying on the Apex Court and High Court precedents.Conclusions: The Tribunal admitted the additional ground challenging the validity of the revisionary order under Section 263 and quashed the assessment framed pursuant to the invalid revisionary order. The decision in ITA No. 521/KOL/2024 was applied mutatis mutandis to the other appeals (ITA Nos. 522 to 526/KOL/2024).Issue 2: Admissibility of Raising Legal Issues for the First Time Before the TribunalRelevant Legal Framework and Precedents: It is a settled principle that legal issues can be raised for the first time before the appellate authority if they go to the root of the matter and no further factual investigation is required. The Tribunal relied on the decisions of the Apex Court in Jute Corporation of India Ltd. vs. CIT and National Thermal Power Co. Ltd. vs. CIT, and the Calcutta High Court in PCIT vs. Britannia Industries Ltd.Court's Interpretation and Reasoning: The Tribunal held that the legal issue challenging the revisionary order under Section 263 was purely legal and based on facts already on record, requiring no further verification. Therefore, the assessee was entitled to raise such issue for the first time before the Tribunal.Conclusions: The Tribunal admitted the additional ground for adjudication and allowed the appeal on this legal issue.Issue 3: Additions under Section 40A(3) of the Act for Alleged Cash Payments Exceeding LimitsRelevant Legal Framework: Section 40A(3) disallows expenditure if payments exceeding Rs. 20,000 are made in cash to a single person in a day. The AO made additions on the ground of violation of this provision in respect of purchases of coal, bricks, labour charges, and carriage inward.Court's Interpretation and Reasoning: The Tribunal noted that the AO and the CIT(A) did not examine the issue in depth and based their decisions largely on ledger copies. The assessee claimed that payments to individual parties did not exceed Rs. 20,000 and that many payments were made by cheque. The Tribunal found merit in the assessee's submissions and directed the AO to re-examine the issue after affording a reasonable opportunity to the assessee. The Tribunal emphasized the need for verification of evidence such as bank statements and payment vouchers to ascertain compliance with Section 40A(3).Conclusions: The appeals relating to these additions were allowed for statistical purposes and remanded to the AO for fresh adjudication after proper verification and hearing.Issue 4: Disallowance under Section 40A(3) and Unexplained Cash Credit under Section 68 in AY 2020-21Relevant Legal Framework: Section 40A(3) disallows certain cash payments, and Section 68 deals with unexplained cash credits. The AO made additions on these grounds, and the assessee failed to respond to notices and delayed filing appeals.Court's Interpretation and Reasoning: The Tribunal observed that the assessee's failure to respond and delay led to dismissal of the appeal by the CIT(A). However, in the interest of justice, the Tribunal restored the appeal to the AO for fresh adjudication after allowing the assessee reasonable opportunity to produce evidence and present contentions.Conclusions: The appeal was restored to the AO for de novo consideration.3. SIGNIFICANT HOLDINGS'The revisionary jurisdiction exercised by the ld. PCIT u/s 263 of the Act and the order passed consequently dated 20.11.2017 were bad in law. Consequently all the proceedings, thereafter are also invalid and bad in law.''The issue on which the reopening was made vis a vis the issue on which the revisionary order was passed were two different issues and therefore, the assessment framed u/s 143(3)/147 dated 25.03.2016 is not amenable to revision u/s 263 of the Act.''The assessee is at liberty to raise any legal issue before any appellate authority for the first time even when the same has not been raised before the lower authorities.''The limitation to pass the revisionary order u/s 263 of the Act in respect of the order passed u/s 143(1) of the Act had already expired on or before 31st March, 2017.''In the interest of justice and fair play, we restore the issue to the file of the ld. AO with a direction to examine the same on the basis of evidences which the assessee may produce during the set aside proceedings after affording a reasonable opportunity of hearing to the assessee.''The appeal of the assessee is allowed on legal issue.''The appeals of the assessee in ITA No. 521 to 526/Kol/2024 for A.Y.2008-09 to 2013-14 are allowed while appeals in ITA No. 1094, 527 & 918/Kol/2024 for A.Y. 2015-16, 2016-17 and 2020-21 are allowed for statistical purposes.'