2019 (1) TMI 1063 - AT - Income Tax

Revision u/s 263 - Disallowance under section 80-IB, Interest on TDS and Addition under section 14A - Held that - There is no escape from the position that what was not the subject matter of notice issued and the order passed under section 263 of the Act, cannot be made subject matter of assessment in pursuance to an order passed under section 263 of the Act. It cannot be disputed, as has also not been done, that the items of additions/disallowances now made by the Assessing Officer, i.e., disallowance of ₹ 26,24,573/- under section 80-IB of the Act; interest of ₹ 1,699/- on TDS and addition of ₹ 36,310/- under section 14A of the Act, were not the subject matter of either the notice issued, or the order passed under section 263 of the Act. In CIT vs. D.N. Dosani (2005 (10) TMI 35 - GUJARAT HIGH COURT), it has been held that where the assessee was called upon by the ld. Pr. CIT to tender an explanation qua two items mentioned in the show cause notice, Pr. CIT could not have treated any further item or part of the assessment order as being erroneous and prejudicial to the interests of the Revenue without giving the assessee an opportunity of being heard; and that, therefore, what the Commissioner himself could not have done, could not be permitted to be done by the Assessing Officer while giving effect to the order under section 263 - Tribunal was right in holding that in the fresh assessment order passed in pursuance of the consolidated order under section 263 of the Act, the Assessing Officer was entitled to consider only two items which had been considered by the Commissioner and was not entitled to consider any other item afresh for making addition. The orders passed by the ld. CIT(A) for both the years are, thus, reversed, except - (i) the ld. CIT(A) s action in directing the Assessing Officer, for assessment year 2010-11, to verify whether M/s Pool Services has disclosed the contract job work charges of ₹ 1,66,700/- in its profit & loss account and paid the income tax thereon, on the fulfillment of such verification, the addition would stand deleted; (ii) the action of the ld. CIT(A) in confirming the addition of ₹ 45,725/- made under section 14A of the Act, for assessment year 2011-12, as this issue does arise from the order issued under section 263 and was correctly made the subject matter of assessment pursuant to the revisional order.

Summary

Issues Involved:
1. Exceeding the scope of Section 263 order.
2. Principles of natural justice.
3. Confined issues in reassessment.
4. Validity of the assessment under Section 263/143(3).
5. Addition of interest paid for late deposit of IDS.
6. Disallowance under Section 80IB.
7. Addition under Section 14A.

Detailed Analysis:

1. Exceeding the Scope of Section 263 Order:
The assessee contended that the CIT(A) and AO exceeded the scope of the order passed under Section 263 of the Act. The Tribunal noted that the AO made additions/disallowances not mentioned in the Section 263 order. Specifically, the AO made disallowances under Section 80-IB, interest on TDS, and addition under Section 14A, which were not part of the original Section 263 order. The Tribunal emphasized that the AO should have confined the reassessment to the issues specified in the Section 263 order.

2. Principles of Natural Justice:
The assessee argued that the authorities violated the principles of natural justice by traveling beyond the directions in the Section 263 order. The Tribunal agreed, stating that the AO's actions were not in line with the specific directions given in the Section 263 order. The AO's failure to adhere to these directions constituted a violation of natural justice principles.

3. Confined Issues in Reassessment:
The Tribunal examined the specific directions in the Section 263 order, which included verifying purchases of raw materials, examining the genuineness of parties, and investigating the generation of cash found during a search. The Tribunal found that the AO did not make any additions concerning these specified issues but instead made unrelated additions, which was improper.

4. Validity of the Assessment under Section 263/143(3):
The Tribunal noted that the reassessment order should have been confined to the issues on which the original assessment was set aside. The additions made by the AO under Section 80-IB, interest on TDS, and Section 14A were not part of the Section 263 order, rendering the assessment invalid to that extent.

5. Addition of Interest Paid for Late Deposit of IDS:
The Tribunal observed that the addition of ?1,699 for interest paid on late deposit of IDS was not mentioned in the Section 263 order. Therefore, this addition was beyond the scope of the reassessment and was deleted.

6. Disallowance under Section 80IB:
The Tribunal found that the disallowance of ?26,24,573 under Section 80IB was not part of the issues specified in the Section 263 order. Consequently, this disallowance was beyond the scope of the reassessment and was deleted.

7. Addition under Section 14A:
The Tribunal noted that the addition of ?36,310 under Section 14A was not mentioned in the Section 263 order. Therefore, this addition was also beyond the scope of the reassessment and was deleted. However, for assessment year 2011-12, the addition of ?45,725 under Section 14A was upheld as it was part of the issues specified in the Section 263 order.

Conclusion:
The Tribunal partly allowed the appeals, reversing the orders passed by the CIT(A) for both years, except for the verification of job work charges and the addition under Section 14A for assessment year 2011-12. The Tribunal emphasized that the AO should have confined the reassessment to the specific issues mentioned in the Section 263 order and that any additions beyond those issues were invalid.