2025 (8) TMI 1677 - AT - Income Tax

Direction under s.264 set aside assessment under s.144; subsequent AO proceedings held beyond jurisdiction and unsustainable

Changappa Pemmaiah Biddamada Versus The Income Tax Officer, Ward -1, Madikeri

ITAT (Bangalore-AT) held that the PCIT's direction under s.264 'set aside' the assessment made u/s 144, which for practical purposes quashed the earlier ... Revision application u/s 264 - whether the assessment made u/s 144 was quashed by PCIT u/s 264? - HELD THAT:- Assessment order was set aside without giving any instruction to initiate fresh assessment proceedings. Whether the term 'set aside' means quashing the earlier assessment? - Coming to the facts of the present case, it is clear that the assessment was set aside by the learned PCIT u/s 264 without giving any direction to the revenue authorities. Hence, it can be inferred that the assessment proceedings u/s 144 stood quashed. Therefore, we hold that no fresh assessment proceedings were legally permitted in these circumstances. The revenue authorities exceeded their jurisdiction by initiating proceedings based on the directions of the learned PCIT under section 264 of the Act despite the fact that the order u/s 144 stood quashed. DR has not shown any record to suggest that the direction under section 264 was either modified or withdrawn by the learned PCIT. Thus, we hold that the assessment order u/s 144 was quashed by PCIT u/s 264. Therefore, the proceedings initiated by the AO after this direction are not sustainable in law. Accordingly, the ground raised by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment order 'set aside' by the appellate/revisional authority under section 264 of the Act, without any direction to make a fresh assessment, amounts to quashing/annulment of the original assessment so as to preclude the Assessing Officer from initiating fresh assessment proceedings on the same issue. 2. Whether the Assessing Officer acts within jurisdiction in passing a fresh assessment/order after an order under section 264 has merely 'set aside' the earlier assessment but given no express direction for reassessment. 3. Whether any contrary action by the Assessing Officer can be validated where there is no record showing modification, withdrawal or appeal against the revisional/appellate order under section 264. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework: meaning and effect of an order 'set aside' under section 264 Legal framework: Section 264 confers revisional powers on the Commissioner to examine and, inter alia, set aside assessment orders. The consequences of an order 'set aside' depend on whether the revisional authority also directs fresh proceedings or remands the matter for fresh adjudication. Precedent Treatment: The Tribunal referred to its own prior order and to authoritative judicial pronouncements (including the Calcutta High Court) which held that where an appellate/revisional order sets aside an assessment without directing a fresh assessment, the effect is annulment/quashing of the earlier assessment and the Assessing Officer has no jurisdiction to reopen or reassess on the same issue. The Tribunal cited supportive rulings which treated 'set aside' as equivalent to quashing where no remand direction is given. Interpretation and reasoning: The Court examined the revisional order's wording ('the assessment order ... is set aside' and an instruction for the assessee to check the e-filing portal) and found no express or implicit direction to the Assessing Officer to redo the assessment. The ordinary meaning of 'set aside' in this context was taken to be quashing the earlier assessment order. The Tribunal reasoned that absent a remand or direction to make fresh assessment, the statutory hierarchy and finality of the revisional order prevent the Assessing Officer from acting as if the earlier assessment subsists. Ratio vs. Obiter: The conclusion that 'set aside' without direction equates to quashing and bars fresh assessment is treated as ratio in the decision; supporting precedent citations are relied upon as binding/precedential for this proposition. Conclusions: An order under section 264 that 'sets aside' an assessment without directing fresh assessment annuls the earlier order; consequently, the Assessing Officer lacks jurisdiction to initiate fresh proceedings on the same issue. Issue 2 - Jurisdiction of the Assessing Officer to initiate fresh proceedings after a section 264 'set aside' order Legal framework: The Assessing Officer derives power to assess or reassess from statutory provisions and from directions of superior authorities. Where a superior authority's order attains finality and does not authorise reassessment, the AO's power to act is curtailed. Precedent Treatment: The Tribunal relied on precedent (including a Tribunal bench order and Calcutta High Court authority) which held that the AO acted without jurisdiction where the appellate/revisional authority set aside an assessment without remanding for fresh proceedings, and that the proper remedy for the department is to challenge the revisional order by appeal rather than to proceed unilaterally. Interpretation and reasoning: Applying the foregoing authorities, the Tribunal found that the AO, by passing a fresh assessment confirming the same addition previously quashed, exceeded jurisdiction. The absence of any direction in the revisional order to conduct fresh assessment means the AO could not lawfully rely on his own initiative to reinstate or reframe the assessment against the statutory authority's order. Ratio vs. Obiter: The determination that reassessment by the AO in such circumstances is ultra vires is ratio; related observations about departmental remedies (appeal) are explanatory but follow directly from the ratio. Conclusions: The AO's initiation of fresh assessment proceedings after a section 264 order that merely set aside the previous assessment (and gave no direction to reassess) was beyond jurisdiction and therefore unsustainable. Issue 3 - Requirement of record showing modification/withdrawal of the section 264 direction and effect of absence thereof Legal framework: Finality of a revisional/appellate order is relevant; any modification/withdrawal of that order must be shown on record to justify contrary action by subordinate authorities. Precedent Treatment: Authorities cited confirm that where the revisional order has not been modified, withdrawn or successfully appealed against, its operative effect continues and subordinate officers must conform to it. Interpretation and reasoning: The Tribunal noted absence of any record evidence that the section 264 direction was modified or withdrawn. In consequence, the revisional order stood unaltered and precluded fresh action by the AO. The Tribunal expressly rejected the Revenue's contention that a direction to check e-filing implied an instruction to remand; the revisional order's plain words controlled. Ratio vs. Obiter: The requirement that there be record proof of any modification/withdrawal before subordinate action is treated as ratio tied to finality principles. Conclusions: In absence of any record showing modification, withdrawal or successful challenge to the section 264 order, subsequent proceedings by the AO were not sustainable. Cross-reference and overall disposition Cross-reference: Issues 1-3 are interrelated: the interpretation of 'set aside' (Issue 1) drives the jurisdictional conclusion regarding the AO (Issue 2), and both are reinforced by the absence of any modification/withdrawal on record (Issue 3). Overall Conclusion: The assessment order that was 'set aside' under section 264 without direction to make fresh assessment was quashed; the Assessing Officer's later initiation of proceedings and confirmation of the same addition was beyond jurisdiction and unsustainable. The appeal was allowed accordingly.