2025 (6) TMI 953 - AT - Income Tax

Assessee wins appeal as revisionary proceedings under Section 263 held invalid for issues not part of original reopening assessment

Mcleod Russel India Limited Versus Pr. CIT, Kolkata-2

Mcleod Russel India Limited Versus Pr. CIT, Kolkata-2 - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal were:Whether the Principal Commissioner of Income Tax (Pr.CIT) validly exercised revisionary jurisdiction under Section 263 of the Income Tax Act, 1961 (the Act) to revise the reassessment order dated 15.03.2022 passed under Sections 147/143(3) of the Act for the assessment year 2015-16.Whether the reassessment order passed under Section 147 r.w.s. 143(3) was erroneous or prejudicial to the interest of revenue so as to justify revision under Section 263.Whether the issues raised by the Pr.CIT in the revision proceedings, specifically the disallowance of deduction under Section 80IE of the Act on income from other sources and the excess allowance of interest under Section 244A, were within the scope of the reassessment order or had come to the notice of the Assessing Officer (AO) during reassessment.Whether the revision under Section 263 was barred by limitation, considering the two-year period prescribed under sub-section (2) of Section 263 from the end of the financial year in which the order sought to be revised was passed.Whether the excess interest allowed under Section 244A of the Act could be withdrawn in the revisionary proceedings or only by rectification proceedings.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Revisionary Jurisdiction under Section 263Relevant legal framework and precedents: Section 263 of the Income Tax Act empowers the Pr.CIT to revise an order passed by the AO if it is found to be erroneous and prejudicial to the interest of revenue. However, sub-section (2) of Section 263 imposes a limitation period of two years from the end of the financial year in which the order sought to be revised was passed. The Hon'ble Supreme Court in CIT vs. Alagendran Finance Ltd. and the Hon'ble Bombay High Court in ICICI Bank Ltd. have held that revision under Section 263 cannot be exercised beyond the prescribed limitation and must be confined to the order passed by the AO.Court's interpretation and reasoning: The Tribunal noted that the reassessment order sought to be revised was dated 15.03.2022. The Pr.CIT issued the notice under Section 263 on 05.02.2024, which was beyond the two-year limitation period ending on 31.03.2024. However, the issues raised in the revision notice were not part of the reassessment order or the reasons recorded for reopening, nor did these issues come to the notice of the AO during reassessment. The Tribunal held that the Pr.CIT could have revised the original assessment order dated 15.10.2018, but the limitation for revision of that order had expired by 31.03.2020. Therefore, the revision of the reassessment order was invalid.Key evidence and findings: The reassessment was framed twice-first on 15.10.2018 and again on 15.03.2022. The issues raised by the Pr.CIT in the revision notice-excess allowance of deduction under Section 80IE on income from other sources and excess interest under Section 244A-were not part of the reassessment reasons or considered by the AO in the 2022 reassessment.Application of law to facts: Since the issues raised were outside the scope of the reassessment and the limitation for revising the original assessment had expired, the Pr.CIT's exercise of revisionary jurisdiction under Section 263 was held to be invalid.Treatment of competing arguments: The Revenue argued that no prejudice was caused to the assessee as sufficient opportunity would be granted in set-aside proceedings. The assessee contended that the revision was barred by limitation and that the issues were not part of the reassessment. The Tribunal sided with the assessee, emphasizing the limitation and scope of revision.Conclusions: The revisionary proceedings initiated under Section 263 were invalid and the order passed was quashed.Issue 2: Whether the reassessment order was erroneous and prejudicial to revenueRelevant legal framework and precedents: An order can be revised under Section 263 only if it is erroneous and prejudicial to the interest of revenue. The deduction under Section 80IE is allowable only on profits and gains from business and not on income from other sources.Court's interpretation and reasoning: The Pr.CIT observed that Rs. 3,75,99,739/- of income from other sources was wrongly allowed deduction under Section 80IE, resulting in under-assessment and consequent tax shortfall. Additionally, excess interest under Section 244A was allowed beyond the date of refund issuance. However, these issues were not considered by the AO during reassessment.Key evidence and findings: The Tribunal found that the AO had not recorded any reasons related to these issues in the reassessment order dated 15.03.2022. The reassessment was framed on different grounds.Application of law to facts: Since the issues were not part of the reassessment or known to the AO, the order was not erroneous or prejudicial on these grounds. The Pr.CIT's conclusion to revise the order on these grounds was therefore incorrect.Treatment of competing arguments: The assessee argued that eligibility for deduction under Section 80IE is examined in the initial year and the impugned year was the sixth year of deduction, hence the issue was barred. The Revenue maintained the correctness of the revision. The Tribunal accepted the assessee's arguments.Conclusions: The reassessment order was neither erroneous nor prejudicial to revenue on the grounds raised by the Pr.CIT.Issue 3: Limitation for revision under Section 263Relevant legal framework and precedents: Sub-section (2) of Section 263 prescribes a two-year limitation from the end of the financial year in which the order sought to be revised was passed. The Apex Court and High Courts have consistently held that this limitation is mandatory.Court's interpretation and reasoning: The reassessment order dated 15.03.2022 fell within the financial year 2021-22, and the limitation for revision expired on 31.03.2024. The notice under Section 263 was issued on 05.02.2024, which prima facie was within limitation. However, since the issues raised were not part of the reassessment order but related to the original assessment dated 15.10.2018, the limitation for revising the original order had expired on 31.03.2020, making the revision invalid.Key evidence and findings: The Tribunal relied on the dates of orders and issuance of notices to determine limitation.Application of law to facts: The Pr.CIT's attempt to revise the reassessment order on grounds pertaining to the original assessment was barred by limitation.Treatment of competing arguments: The assessee emphasized the limitation bar, while the Revenue argued the revision was timely. The Tribunal upheld the limitation bar.Conclusions: Revision under Section 263 was barred by limitation and hence invalid.Issue 4: Withdrawal of excess interest allowed under Section 244ARelevant legal framework and precedents: Interest under Section 244A is payable on refund amounts up to the date of refund issuance. Excess interest allowed can be withdrawn by rectification proceedings under Section 154 of the Act.Court's interpretation and reasoning: The assessee conceded that excess interest allowed could be withdrawn by rectification proceedings and not necessarily through revision under Section 263.Key evidence and findings: The Tribunal noted the concession and did not interfere with the mechanism of withdrawal.Application of law to facts: The withdrawal of excess interest was not a matter for revisionary jurisdiction but for rectification.Treatment of competing arguments: No contest on this point.Conclusions: Excess interest could be withdrawn by rectification proceedings.3. SIGNIFICANT HOLDINGSThe Tribunal held:'The Pr.CIT has wrongly revised the order passed u/s.143(3)/147 of the Act dated 15.03.2022 as the said order is neither erroneous nor prejudicial to the interest of revenue. The ld. Pr.CIT could have at the most revised the original assessment framed by the AO dated 15.10.2018, however, such action u/s.263 of the Act had become barred by limitation in accordance with provisions under sub-section 2 to Section 263 of the Act.''Considering the facts and circumstances of the case and in the light of aforesaid decisions, we are inclined to quash the revisionary proceedings as well as the revisionary order passed u/s.263 of the Act.'Core principles established:Revision under Section 263 must be confined to the order passed by the AO and the issues considered therein.Revision cannot be exercised on grounds not considered or known to the AO during the assessment or reassessment proceedings.The limitation period under sub-section (2) of Section 263 is mandatory and bars revision beyond two years from the end of the financial year in which the order was passed.Excess interest allowed under Section 244A can be withdrawn by rectification proceedings and not necessarily by revision under Section 263.Final determinations:The revisionary proceedings initiated by the Pr.CIT were invalid and the order passed under Section 263 was quashed.The reassessment order dated 15.03.2022 was held to be neither erroneous nor prejudicial to the interest of revenue on the grounds raised.The assessee's appeal was allowed.