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2022 (10) TMI 1215 - AT - Income TaxRevision u/s 263 - Validity of reopening of assessment u/s 147 - notice issued beyond period of four years - as per CIT transactions of receipt of share capital and share premium not enquired by AO - HELD THAT - Concluded assessment of the assessee for AY 2011-12 that was earlier framed u/s 143(3), as observed by us hereinabove could not have been reopened by the AO vide Notice u/s 148 i.e, after expiry of four years from the end of the relevant assessment year. Admittedly, as the AO vide his order passed under Sec. 143(3) r.w.s 147, had accepted the assessee s returned income, therefore, as stated by the ld. AR and, rightly so, there was no occasion much the less any justification for the assessee to have carried the order of reassessment any further in appeal. Thus when the impugned order of reassessment under Sec. 143(3) r.w.s 147, in itself had been passed on the basis of invalid assumption of jurisdiction by the AO, and thus, is invalid and bereft of any force of law, therefore, the same could not have been revised by the Pr. CIT under Sec.263 of the Act. Admittedly, we have accepted the aforesaid claim of the assessee that the AO as per the mandate of the 1st proviso to Sec. 147 the Act had invalidly assumed jurisdiction and reopened the concluded assessment of the assessee beyond the prescribed time period available for doing so i.e upto 31.03.2016. Whether or not the validity of the order passed by the AO under Sec. 143(3) r.w.s 147,could for the very first time in the course of the present appellate proceedings before us be taken as a basis by the assessee for assailing the sustainability of the order passed by the Pr. CIT under Sec. 263? - There is substance in the claim of the ld. AR that as the proceedings before the Pr. CIT u/s 263 of the Act, dated 27.03.2021 are in the nature of collateral proceedings, therefore, the assessee could in the course of appellate proceedings which in turn originates from the order passed u/s 263 of the Act, dated 27.03,2021 challenge the validity of the impugned assessment order passed by the A.O u/s. 143(3) r.w.s.147, dated 30.12.2018. The aforesaid contention of the ld. A.R that the illegality/invalidity of an order passed in the primary proceedings can be challenged in the course of the collateral proceedings finds support from the order of a coordinate bench of the Tribunal i.e ITAT, Mumbai in the case of Westlife Development Ltd. 2016 (6) TMI 1208 - ITAT MUMBAI . It was, inter alia, observed by the tribunal that an assessee can challenge the validity of an order passed u/s.263 of the Act on the ground that the impugned assessment order was non-est. Indulgence of the tribunal in the said case was sought by the assessee for adjudicating the following issues (as culled out from the order). Thus as the order of reassessment under Sec.143(3) r.w.s 147 in itself had been passed on the basis of invalid assumption of jurisdiction by the AO, therefore, as claimed by the assessee and, rightly so, the same could not have been revised by the Pr. CIT under Sec. 263 of the Act. Accordingly, we herein quash the order passed by the Pr. CIT under Sec. 263 for want of valid assumption of jurisdiction. Decided in favour of assessee.
Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income-Tax Act, 1961. 2. Limitation period for invoking Section 263. 3. Examination of share capital and share premium. 4. Principles of natural justice and reasonable opportunity of being heard. 5. Validity of reassessment order under Section 147/143(3). 6. Twin conditions under Section 263. 7. Independent enquiry by PCIT. 8. Prospective nature of Explanation 2 to Section 263. 9. Validity of notice under Section 148. Detailed Analysis: 1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263: The assessee challenged the jurisdiction of the PCIT to pass the order under Section 263, claiming it was beyond jurisdiction, illegal, and bad in law. The Tribunal noted that the PCIT had issued a show cause notice to the assessee regarding the reassessment order, which was claimed to be erroneous and prejudicial to the interests of the revenue. The PCIT observed that the assessee had raised a fund of Rs.176 crore by issuing equity shares at a high premium, but the AO failed to carry out necessary enquiries regarding the nature and source of the capital introduced. The Tribunal concluded that the PCIT had jurisdiction to revise the order if it was erroneous and prejudicial to the interest of the revenue. 2. Limitation Period for Invoking Section 263: The assessee argued that the order passed by the PCIT was barred by limitation under Section 263(2). The Tribunal considered the Supreme Court's orders regarding the extension of the limitation period due to the Covid-19 pandemic and concluded that the appeal filed by the assessee was within the extended period of limitation. 3. Examination of Share Capital and Share Premium: The PCIT observed that the assessee had issued equity shares at a high premium and raised Rs.176 crore during the year. The PCIT noted that the financial strength of the investor companies did not justify the substantial investment made in the assessee company. The Tribunal found that the AO had failed to carry out necessary enquiries regarding the share capital and share premium, rendering the reassessment order erroneous and prejudicial to the interests of the revenue. 4. Principles of Natural Justice and Reasonable Opportunity of Being Heard: The assessee contended that the PCIT passed the order without affording a reasonable opportunity of being heard, violating the principles of natural justice. The Tribunal did not specifically address this issue but focused on the validity of the reassessment order and the jurisdiction of the PCIT under Section 263. 5. Validity of Reassessment Order under Section 147/143(3): The assessee challenged the validity of the reassessment order, claiming it was based on invalid assumption of jurisdiction under Section 147. The Tribunal examined the "reasons to believe" recorded by the AO for reopening the assessment and found that the AO had not alleged any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. The Tribunal concluded that the AO had exceeded his jurisdiction by reopening the assessment after the expiry of four years from the end of the relevant assessment year, rendering the reassessment order invalid and non-est in the eyes of law. 6. Twin Conditions under Section 263: The assessee argued that the twin conditions under Section 263, i.e., the reassessment order being erroneous and prejudicial to the interests of the revenue, were not satisfied. The Tribunal found that the AO had failed to carry out necessary enquiries regarding the share capital and share premium, rendering the reassessment order erroneous and prejudicial to the interests of the revenue. 7. Independent Enquiry by PCIT: The assessee contended that the PCIT had not conducted an independent enquiry before passing the order under Section 263. The Tribunal noted that the PCIT had observed the failure of the AO to carry out necessary enquiries and directed the AO to adjudicate the matter afresh after making adequate enquiries. 8. Prospective Nature of Explanation 2 to Section 263: The assessee argued that Explanation 2 to Section 263 was prospective in nature and not applicable for the year under consideration. The Tribunal did not specifically address this issue, focusing instead on the validity of the reassessment order and the jurisdiction of the PCIT under Section 263. 9. Validity of Notice under Section 148: The assessee raised an additional ground challenging the validity of the notice issued under Section 148. The Tribunal found that the AO had issued the notice beyond the prescribed period of four years from the end of the relevant assessment year without alleging any failure on the part of the assessee to disclose fully and truly all material facts. The Tribunal concluded that the reassessment order was based on invalid assumption of jurisdiction and could not be revised by the PCIT under Section 263. Conclusion: The Tribunal quashed the order passed by the PCIT under Section 263, dated 27.03.2021, on account of invalid assumption of jurisdiction. The reassessment order passed by the AO under Section 143(3) r.w.s 147, dated 30.12.2018, was found to be invalid and non-est in the eyes of law. The appeal filed by the assessee was allowed, and the Tribunal refrained from adjudicating the other contentions raised by the assessee.
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