2025 (10) TMI 1150 - AT - Income Tax

s.263 revision invalid where s.153A assessments excluded search material and s.80IC entitlement was beyond assessment scope

ITAT, Mumbai held the PCIT's revision under s.263 unsustainable and quashed the revisionary orders. Relying on the SC precedent, the Tribunal found no ... Revision u/s 263 - Validity of assessment orders u/s 153A - entitlement of the assessment u/s 80IC - HELD THAT:- As in light of the principle laid in the judgment Abhisar Buildwell [2023 (4) TMI 1056 - SUPREME COURT] we find that no addition has been made by the department to the income of assessee on the basis of any incriminating material in the main assessment orders u/s 153A, also no reference of such material has been recorded in the revisionary orders u/s 263 by the Ld. PCIT, therefore, the issue raised by the Ld. PCIT u/s 263 to check the entitlement of the assessment u/s 80IC, which was beyond the scope of assessment u/s 153A, so examination of such issue by the Ld. AO was beyond his jurisdiction, thus the assessment completed cannot be said to be erroneous, the same therefore falls out of the ambit of provisions of Section 263. We, therefore, are unable to concur with the exercise and assumption of powers u/s 263 by Ld. PCIT in the present matters, without satisfying the mandate of law. Since, it is held that the issue raised by the Ld. PCIT was not emanating from any incriminating material found during the search, therefore was out of ambit of powers conferred upon him u/s 263, therefore, the revisionary action taken by the Ld. PCIT was beyond his jurisdiction and accordingly, the same cannot be sustained. Since the order u/s 263 passed by PCIT was held as erroneous beyond the scope of provision of section 263 without the mandate of law to invoke such powers on the basis of no incriminating material for unabated assessment year, therefore, we are not dealing with other contention raised by the Ld. AR to deal with on legal aspects or merits of the case. ISSUES PRESENTED AND CONSIDERED 1. Whether a revision under Section 263 of the Income-tax Act is sustainable against an assessment completed under Section 153A read with Section 143(3) for unabated/completed assessment years where no incriminating material was found during the search and no additions were made on the basis of such material. 2. Whether a revisional order under Section 263 can be sustained when the revising authority directs fresh assessment proceedings without itself recording independent enquiries or reaching a decision on merits as to how the assessment was erroneous and prejudicial to revenue. 3. Whether the approval under Section 153D for completion of assessment under Section 153A must be separately revised or set aside before altering or revising the assessment under Section 263. 4. Ancillary issues raised and considered (to the extent relevant): (a) whether additions in unabated/completed assessment years under Section 153A can be made in absence of incriminating material; (b) whether failure of the Assessing Officer to refer to specific enquiries or to verify shifting of claim subsections (in particular claims under different sub-clauses of Section 80IC) can constitute an erroneous and prejudicial order within the meaning of Section 263; and (c) the validity of notices issued under Section 153A beyond six years where statutory conditions for such issuance (escape of income > threshold) were not found (raised but not decided on merits). ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Section 263 revision against Section 153A assessments where no incriminating material was found Legal framework: Section 153A gives jurisdiction to assess following a search/requisition; where search relates to completed (unabated) assessment years, additions in those years on completion under Section 153A are permissible only if incriminating material is found during the search (consistent with statutory scheme and explained exceptions). Section 263 empowers the Commissioner to revise an assessment order which is 'erroneous and prejudicial to the interests of revenue'. Explanation 2 to Section 263 (as amended) prescribes the nature of required enquiries/verification. Precedent treatment: The Tribunal applied the ratio of the apex authority in the reported decision (referred to and extracted in the judgment) holding that where no incriminating material is found during a search, the AO cannot make additions in respect of completed/unabated assessment years under Section 153A; re-opening in those years is available only under Sections 147/148 subject to their conditions. That precedent was followed. Interpretation and reasoning: The Court examined the assessment records and the revisionary order and found no reference to any incriminating material relied upon either in the assessment orders under Section 153A or in the revisional order under Section 263. Since the impugned issues (entitlement to deduction under Section 80IC) did not emanate from any incriminating material found during the search, the Assessing Officer's examination on that issue was beyond the permissible scope of a Section 153A assessment of unabated years. Consequently, the revisional authority's action to set aside the assessment under Section 263 and remit for fresh enquiry was founded on matters outside the scope of Section 153A and the controlling precedent. Ratio vs. Obiter: Ratio - where no incriminating material is unearthed in a search, neither the AO (in a Section 153A assessment) nor the Revisional Commissioner (in exercise of Section 263) can validly make or direct additions in respect of completed/unabated assessment years on the basis of non-search material; such action is beyond jurisdiction and contrary to the precedent. Obiter - ancillary observations about interaction with Sections 147/148 as an available route for re-opening. Conclusion: Revision under Section 263 in the instant facts was not sustainable because the issue questioned by the revisional authority did not arise from incriminating material unearthed during the search; the exercise of revisional power was beyond the permissible scope and is quashed. Issue 2: Requirement of independent enquiries/decision-making by revisional authority under Section 263 Legal framework: Section 263 requires the Commissioner to be satisfied that the assessment order is erroneous and prejudicial; Explanation 2 (as inserted) contemplates that requisite enquiries, verifications, analyses and investigations necessary to conclude on error/prejudice must be carried out. The Commissioner must record reasons and not merely remand without independent application of mind. Precedent treatment: The judgment relied on the principle that a revisional order must specify how the assessment is erroneous and must conform to statutory mandates regarding enquiries; authorities cited by the parties were considered, but the Tribunal's primary finding on jurisdiction obviated need to decide all aspects. Interpretation and reasoning: The revisional order remitted the matter to the AO for fresh assessment without itself recording findings of incriminating material or detailed independent inquiries showing why the AO's acceptance of the deduction was erroneous. The Tribunal held that where the fundamental jurisdictional requirement (presence of incriminating material) is not satisfied, the absence of independent decision-making by the revisional authority becomes immaterial to sustain the revision. Because the revision itself was beyond power, deficiency in inquiry by the revisional authority was subsumed by lack of jurisdiction. Ratio vs. Obiter: Ratio - a revisional order must be founded on matters within jurisdiction (e.g., incriminating material for unabated years); absent such jurisdictional basis, the revisional authority cannot sustain remand/variation merely by directing further enquiries. Obiter - detailed contours of how much independent inquiry a Commissioner must conduct before remanding were not exhaustively decided since quashing was on jurisdictional grounds. Conclusion: The revisional direction without independent findings did not cure the primary illegality-because the revision was predicated on matters outside the scope of Section 153A, the remand/order was invalid. Issue 3: Necessity of revising approval under Section 153D before exercising Section 263 Legal framework: Section 153D deals with supervisory approval for assessments under Section 153A; the interplay with Section 263 raises whether revisional proceedings can proceed without first revising or setting aside such approval. Precedent treatment: Parties raised authorities on both sides; however, the Tribunal did not decide this issue on merits because its conclusion on jurisdictional infirmity (Issue 1) rendered further determination unnecessary. Interpretation and reasoning: The Tribunal noted the contention and that authorities were cited, but expressly refrained from adjudicating the point because the Section 263 action was held invalid on the primary ground that the subject matter of revision did not arise from incriminating material. Thus, the question of revising Section 153D approval remained academic in the present disposal. Ratio vs. Obiter: Obiter - the requirement to revise or set aside approval under Section 153D before exercising Section 263 was not decided and is therefore not part of the ratio of this decision. Conclusion: Not decided on merits; held academic because the Section 263 order was quashed on jurisdictional grounds. Ancillary Issue: Notices under Section 153A beyond six years and shifting claims under Section 80IC Legal framework: Section 153A limitation aspects and statutory thresholds for issuing notices beyond six years were raised; shifting of legal subsections relied upon by the assessee (different sub-clauses of Section 80IC across years) bears on whether the AO should have made enquiries. Precedent treatment: The Tribunal recorded the contentions of parties and considered that these issues were raised, but declined to rule on them because the primary ground of disposing the appeals (lack of incriminating material and resulting lack of jurisdiction) was determinative. Interpretation and reasoning: Although the assessee advanced factual and documentary proof of production activities and location, and challenged the absence of AO enquiries regarding shifting claim subsections, the Tribunal observed these contentions became academic once the revisional order was held invalid for being beyond the scope of Section 153A; the Tribunal therefore did not adjudicate on the limitation/notice validity or on the merits of eligibility under Section 80IC. Ratio vs. Obiter: Obiter - observations on these ancillary issues were not adjudicated and do not form part of the operative ratio. Conclusion: Ancillary contentions left undecided as academic; the appeals were allowed on the jurisdictional ground removing the need to decide these matters. Overall Conclusion The revisional exercise under Section 263 was unsustainable because the revisional authority challenged aspects of the assessment that did not arise from incriminating material found during the search; consequently the exercise was beyond permissible scope for unabated/completed assessment years under Section 153A and contrary to controlling precedent. The revisional orders were quashed and appeals allowed on that sole ground; other legal/contentious points were not decided as they were rendered academic.