2026 (1) TMI 232 - AT - Income Tax

Commission income transactions earlier accepted at 0.5% rebranded as s.68 cash credits; s.263 revision barred during appeal

The dominant issue was whether the PCIT could assume revisionary jurisdiction under s.263 to recharacterize transactions, earlier accepted by the AO for ... Revision u/s 263 - as per CIT AO erred in making addition on account of commission at 0.5% without there being any basis - PCIT proposed to treat the transactions which were considered by the AO for estimating the commission at 0.5% as unexplained cash credit u/s 68 - HELD THAT:- We find considerable merit in the submissions of the assessee. The provisions of Explanation 1 to sub section (1) to section 263 clause (c) restricts the power of the Ld. PCIT to invoke jurisdiction u/s 263 of the Act on the issues which have been subject matter of any appeal before the Ld. CIT(Appeals). The Madras High Court in the case of Smt. Renuka Philip [2018 (12) TMI 129 - MADRAS HIGH COURT] has squarely held that when the larger issue was pending before the Commissioner of Appeals in such circumstances the Commissioner could not exercise power u/s 263 on account of statutory bar in view of the clause (c) of explanation to section 263(1) of the Act. Similar view has been taken in the case of CIT vs. Vam Resorts & Hotels Pvt. Ltd. [2019 (8) TMI 1418 - ALLAHABAD HIGH COURT]. Thus, we hold that the PCIT had no jurisdiction to invoke the provisions of section 263 of the Act since the issue in show cause notice was already subject matter of appeal before the Ld. CIT(Appeals) in all these cases. Thus, we quash the orders passed by the Ld. CIT(Appeals) u/s 263 - Decided in favour of assessee. Issues: Whether the Principal Commissioner of Income Tax could validly invoke jurisdiction under Section 263 of the Income-tax Act to revise the Assessing Officer's order when the same issues were already the subject matter of appeals pending before the Commissioner of Income Tax (Appeals).Analysis: The question turns on Explanation-1 to sub-section (1) of Section 263 (clause (c)), which restricts the Commissioner’s power to matters not considered and decided in an appeal against the Assessing Officer’s order. The assessments were framed after enquiries and inquiries recorded; the Assessing Officer made additions (commission under Section 69C) after considering statements, documents and bank records, and appeals against those assessment orders were filed before the CIT(A) prior to issuance of the Section 263 show-cause notices. The Tribunal examined whether the matters raised in the Section 263 show-cause notices were identical to those already under appeal and found they were the same. The Tribunal also noted that an error in computation of interest under Section 234A, if any, was at best a mistake apparent from record suitable for rectification under Section 154 and not a ground for revision under Section 263.Conclusion: The PCIT lacked jurisdiction to invoke Section 263 on issues already the subject matter of appeals before the CIT(A); the orders passed under Section 263 for assessment years 2017-18 to 2019-20 are quashed and the appeals by the assessee are allowed.