2025 (5) TMI 2031 - AT - Income Tax

ITAT sets aside revision order under Section 263 for denying adequate opportunity to assessee

Ritu Bansal Versus Pr. CIT, Income-tax-1, Agra. And Sudhir Bansal And Pr. CIT, Income-tax-1, Agra. And Sinwan Ahmad Shah Versus Pr. CIT, Income-tax-1, Agra. And Shree Balaji Concast Private Limited, 1, Jammanlal Compound Versus Pr. CIT, Income-tax-1, Agra And Ganpati Enterprises, 94, Old Vijay Nagar Versus CCIT (OSD) /PCIT-1, Agra.

The ITAT AGRA set aside a revision order u/s 263 after finding that the assessee was not given adequate opportunity to controvert facts before the order ... Revision u/s 263 - no adequate opportunity had been given to the assessee to controvert the facts HELD THAT:- Identical view was taken in the case of Tulsi Tracom Private Ltd [2017 (9) TMI 1041 - DELHI HIGH COURT] wherein held that the Commissioner who had issued order u/s. 263 ought to have been fully satisfied that adequate opportunity had been given to the assessee to controvert the facts stated in the notice and to explain the situation concerning such facts. Further, considering the limitation for passing of order u/s. 263, Hon’ble Court had held that no useful purpose would be served in giving opportunity of hearing to the assessee at this stage again. The order passed by ld. CIT was accordingly set aside in the facts of the said case. No substance in the contention of the ld. DR that the matter be restored back to the PCIT for reconsideration. Assessee appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in these appeals are:Whether the orders passed by the Principal Commissioner of Income-tax (PCIT) under section 263 of the Income-tax Act, 1961, without affording adequate opportunity of hearing to the assessees, are sustainable.Whether the issuance of a show-cause notice under section 263 with an extremely short time frame (one day) to respond, followed by passing of revisionary orders without any response, violates the principles of natural justice.Whether, in cases of such procedural lapses, the appropriate course is to set aside the orders or to remit the matter back to the PCIT for reconsideration.Whether the legal principles established in the precedent judgments, including the Supreme Court ruling in Sona Builders vs. Union of India and the Allahabad High Court decision in M.L. Chains vs. PCIT, apply to the present facts.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of orders passed under section 263 without adequate opportunity of hearingRelevant legal framework and precedents: Section 263 of the Income-tax Act empowers the Commissioner to revise an order if it is erroneous and prejudicial to the interests of the Revenue. The exercise of this power is circumscribed by settled legal principles, notably that the revisionary authority must arrive at a categorical finding on the merits after considering the relevant errors and prejudice caused. The Supreme Court in Malabar Industries Ltd. vs. CIT (2000) 243 ITR 83 (SC) emphasized that revision under section 263 requires the assessment to be both erroneous and prejudicial to Revenue's interest. Additionally, the principle of natural justice mandates that the assessee be given adequate opportunity to be heard before adverse orders are passed.Court's interpretation and reasoning: The Tribunal noted that in all the appeals, the show-cause notices under section 263 were issued on 28.03.2022, served on 29.03.2022, directing the assessees to file replies by 30.03.2022, and the revisionary orders were passed on 31.03.2022 without any replies having been filed. This chronology clearly indicated that the assessees were not afforded a reasonable opportunity to respond. The Tribunal relied on its earlier decision in ITA No. 33/Agr/2023 & Ors. dated 21.02.2025, where identical facts were considered, and the revisionary orders were quashed for the same reasons. The Tribunal also referred to the Allahabad High Court decision in M.L. Chains vs. PCIT, which held that mere non-response to show-cause notices cannot sustain a revision order unless the revisional authority has independently examined the merits and found error and prejudice.Key evidence and findings: The uncontroverted factual matrix showed the impossibility of filing a meaningful reply within one day. The Tribunal observed that the revisional authority had not recorded any categorical findings on the merits or prejudice caused. The orders were passed mechanically and without due application of mind.Application of law to facts: Applying the settled legal principles, the Tribunal held that the orders under section 263 were not sustainable as they violated the principles of natural justice by denying adequate opportunity to the assessees. The absence of any merit-based discussion or findings further invalidated the orders.Treatment of competing arguments: The Department contended that the appropriate remedy was to remit the matter back to the PCIT for reconsideration after affording opportunity. However, this argument was rejected based on binding precedent.Conclusions: The Tribunal concluded that the revisionary orders passed without adequate opportunity of hearing were invalid and liable to be quashed.Issue 2: Whether the matter should be remanded back to the PCIT for reconsideration or the orders should be set aside outrightRelevant legal framework and precedents: The Supreme Court in Sona Builders vs. Union of India, 251 ITR 197, held that where there is a gross breach of the principles of natural justice, the matter cannot be remanded back to the authority but must be set aside. The Court emphasized that when the statutory authority acts without affording adequate opportunity and within a limited time frame, and fails to comply with natural justice, the order must be quashed outright. Similarly, the Delhi High Court in Tulsi Tracom Private Ltd. v. CIT (2018) 161 DTR 148 (Delhi) held that no useful purpose is served by remanding where the order was passed without adequate opportunity and within the limitation period.Court's interpretation and reasoning: The Tribunal observed that the Department's contention for remand was not tenable in light of the apex court's ruling. The Tribunal noted that the show-cause notice gave only one day to respond, which was grossly inadequate and a clear violation of natural justice. Given the statutory limitation period within which the PCIT had to act, and the failure to comply with natural justice, the Tribunal held that the orders must be set aside rather than remanded.Key evidence and findings: The Tribunal highlighted that the short notice period and the absence of any documents or particulars with the notice prevented the assessees from making an effective response. The Department did not dispute these facts.Application of law to facts: Applying the principles from Sona Builders and Tulsi Tracom, the Tribunal held that remand would serve no purpose and would only delay justice. The orders were accordingly set aside.Treatment of competing arguments: The Department's plea for remand was considered but rejected based on authoritative precedent and the facts of the case.Conclusions: The Tribunal concluded that the orders passed under section 263 without adequate opportunity must be quashed outright and not remanded.3. SIGNIFICANT HOLDINGSThe Tribunal held:'We find no reason to sustain any of the impugned revision direction forming subject matter of our adjudication in all these cases. This is for the precise reason that apart from reproducing the corresponding show-cause notices which went un-responded by the most of the assessees, there is not even a single instance wherein the learned revisional authority has arrived at any categorical finding on merits after having discussed the relevant error as well as prejudice caused to the interest of the Revenue.''Meaning thereby that till the time such a conclusion is not arrived at by the learned revision authority; an assessment could not be held as liable to be revised merely because of the fact that the corresponding show-cause notice(s) issued to the taxpayer have gone unresponded.''We do not find any substance in the contention of the ld. DR that the matter be restored back to the PCIT for reconsideration. Reason for the same being that the Apex Court in the case of Sona Builders vs. Union of India, 251 ITR 197 has categorically held that where there is gross breach of the principle of natural justice, matter could not be remanded back to the appropriate authority.''Having regard to the statutory limit within which the Appropriate Authority has to act and its failure to act in conformity with the principles of natural justice, we do not think we can remand the matter to the Appropriate Authority. We must set its orders aside.'Core principles established include:Revisionary orders under section 263 must be based on a finding of error and prejudice to Revenue, supported by reasons and after affording adequate opportunity to the assessee.Passing orders under section 263 without affording reasonable opportunity to respond violates the principles of natural justice and renders the orders unsustainable.Where there is a gross breach of natural justice, especially with inadequate notice and opportunity, the orders cannot be remanded but must be set aside outright.Non-response to show-cause notices alone does not justify revisionary orders without independent examination of merits.Final determinations on each issue:The orders passed by the PCIT under section 263 without affording adequate opportunity of hearing are quashed.The appeals filed by the assessees are allowed.The matter is not remanded back to the PCIT for reconsideration.