2012 (9) TMI 830 - AT - Income Tax

Validity of revisionary order passed u/s 263 on 19-3-2012, setting aside reassessment order passed on 18-11-2009 u/s 143(3), r.w.s. 147 - period of limitation - assessee submitted that the assessment for 2002-2003 was completed u/s 143(1) by intimation dated 28.02.2003 and as such the period of limitation u/s 263 expired on 31.03.2005, being 2 years from the end of the FY in which the assessment was originally completed - Held that - Contention of the assessee that the limitation for the purpose of the impugned revision order should be reckoned with the earlier order passed u/s 143(1), is not sustainable in law. This is because section 143(1) does not permit an Assessing Officer to make any addition or dis-allowance, and thus cannot be a basis for examining whether the final assessment order passed by the AO is erroneous or prejudicial to the interests of the Revenue. Moreover any proceeding of an authority under the Income-tax Act is amenable to the revisional jurisdiction of the Commissioner of Income-tax. Therefore, assessment order passed by the AO u/s 143(3), r.w.s.147, by itself is independently amenable to the revisional jurisdiction of the CIT - Ground of assessee rejected On merits it is held that Section 14A, read with Rule 8D, is not applicable to the impugned AY 2002-03. In view of aforesaid, revision order is not sustainable in law. Moreover, while examining the reassessment order in the light of section 14A, the CIT has not made any prima facie finding that in fact the assessee had incurred expenditure to earn the tax-free income and that expenditure has been claimed as a deduction in computing its taxable income. Hence, impugned revision order passed by the CIT is not sustainable on facts also - Decided in favor of assessee.

Summary

Issues involved:
1. Revision order passed under section 263 of the Income-tax Act, 1961.
2. Applicability of section 14A regarding disallowance of expenditure related to exempt income.
3. Jurisdiction of the Commissioner of Income-tax in revising assessment orders.
4. Limitation period for revision under section 263.
5. Assessment order passed under section 143(3), read with section 147, making an addition under section 2(22)(e) of the Act.

Revision Order under Section 263:
The appeal concerns a revision order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961. The Commissioner set aside the assessment order due to the failure to disallow expenditure related to exempt dividend income under section 14A. The revision was based on the observation that the Assessing Officer and the assessee did not address this issue, leading to the order being deemed erroneous and prejudicial to revenue interests.

Applicability of Section 14A - Expenditure Disallowance:
The Commissioner invoked section 263 due to the failure to disallow expenditure related to exempt dividend income under section 14A. However, the Tribunal noted that section 14A, along with Rule 8D, was not applicable for the assessment year in question, 2002-03. The Commissioner's order was found not to be sustainable in law as section 14A was not operational during the relevant period.

Jurisdiction of the Commissioner of Income-tax:
The Tribunal analyzed the Commissioner's jurisdiction to revise assessment orders. It clarified that an order passed under section 143(1) is limited to an arithmetical processing and cannot be the basis for determining the final assessment's correctness. The Tribunal held that the assessment order under section 143(3), read with section 147, was independently subject to the Commissioner's revisional jurisdiction, dismissing the grounds raised by the assessee regarding the limitation period.

Limitation Period for Revision under Section 263:
The Tribunal rejected the assessee's argument that the limitation for the revision order should be reckoned from the earlier order under section 143(1). It explained that section 143(1) does not allow for additions or disallowances, and any proceeding under the Income-tax Act is subject to the Commissioner's revisional jurisdiction, including the assessment order under section 143(3), read with section 147.

Assessment Order under Section 143(3), Read with Section 147:
The Tribunal examined the assessment order that made an addition under section 2(22)(e) of the Act. It was noted that the Commissioner's revision order was based on the failure to disallow expenditure related to exempt dividend income. However, the Tribunal found that the Commissioner did not establish that the assessee had claimed such expenditure as a deduction in computing taxable income. Without a prima facie finding of this nature, the assessment order was not deemed erroneous. Consequently, the Tribunal set aside the revision order passed by the Commissioner of Income-tax.

In conclusion, the Tribunal allowed the appeal filed by the assessee and dismissed the miscellaneous petition, as the appeal itself had been decided. The Tribunal found the revision order unsustainable due to the inapplicability of section 14A for the relevant assessment year and the lack of prima facie evidence supporting the disallowance of expenditure related to exempt income.