2019 (8) TMI 1266 - AT - Income Tax

Revision u/s 263 - appellant argued that the notice issued u/s 263(1) was beyond the period of limitation - disallowance of the appellant s claim u/s 80IC - AO disallowed in intimation then allowed by passing order u/s 154 - HELD THAT - We are therefore convinced that the proceedings u/s 263, if any, qua the issue of grant of deduction u/s 80-IC, could have been initiated only with the period of two years from the end of the FY 2010-11 being the year in which the order u/s 154/143(1) was passed. This proposition is squarely supported by the decision of the Hon ble Apex Court in the case of CIT Vs Alagendran Finance Ltd 2007 (7) TMI 304 - SUPREME COURT Section 246A enlists various orders against which a right of appeal is provided by the Legislature and u/s 246A(1)(a), an order u/s 143(1) is specifically made an appealable order. We therefore find that if the Legislature has provided right of appeal against an intimation u/s 143(1) then there is no reason to hold that such an order is not amenable to revision u/s 263 by the Commissioner. Hence, merely because in the present case the AO initiated reassessment proceeding u/s 147 with regard to some issue other than the grant of deduction u/s 80-IC, such fact by itself did not extend the limitation period with regard to such issue. Particularly, in view of the fact that this very issue regarding grant of deduction u/s 80IC was the subject matter of disallowance in the intimation u/s 143(1) which was subsequently deleted by the AO in his order u/s 154. If one goes by the ld. CIT s proposition that the grant of deduction u/s 80-IC was erroneous; then it is evident from the facts of the present case that the deduction was consciously allowed by the AO by an order u/s 154/143(1) dated 09.04.2010 and therefore error, if any, had crept in the said order, and not in the latter order u/s 147/143(3) dated 09.02.2016. Respectfully following the ratio decidendi laid down by the Hon ble Apex Court in the case of CIT Vs Alagendran Finance Ltd (supra), we therefore hold that the proceedings u/s 263 had become barred on 31.03.2013 and consequently therefore the impugned order dated 22.03.2018 is held to be bad in law and accordingly quashed. Revision based on order dropping proceeding u/s 147 - We also find merit in the alternate argument of the ld. AR that the ld. Pr.CIT could not have invoked her revisionary jurisdiction u/s 263 in the given facts of the appellant s case. As noted the proceedings u/s 147 were initiated by the AO on the basis of certain information received from Investigating Wing at New Delhi with regard to appellant s transaction with M/s Bhola Motors Pvt Ltd. With reference to these transactions alone the AO had recorded his satisfaction that in his opinion income chargeable to tax had escaped assessment. In the course of reassessment proceedings, after conducting independent enquiries from M/s Bhola Motors Pvt Ltd the AO was satisfied that no income had escaped assessment with reference to these transactions Once the AO found his reasons to believe, to be factually unsustainable, then the only course open for him was to close such proceedings and it was no more open for him to travel to other unconnected and unrelated issues. In the circumstances what the AO himself could not have done directly in the proceedings u/s 147, the ld. Pr. CIT could not achieve it by resorting to proceedings u/s 263. We hold that the order of the ld. Pr. CIT u/s 263 is legally unsustainable and accordingly the same is hereby cancelled. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the proceedings under Section 263 were barred by limitation.
2. Whether the reassessment order dated 09.02.2016 was erroneous and prejudicial to the interests of the Revenue.
3. Applicability of Section 92E and the audit report requirement.
4. The scope of the Assessing Officer’s (AO) jurisdiction during reassessment proceedings under Section 147.

Issue-wise Detailed Analysis:

1. Limitation for Proceedings under Section 263:
The appellant argued that the notice issued under Section 263(1) was beyond the period of limitation. The period of limitation for invoking Section 263 begins from the end of the year in which the order under Section 143(1)/154 was passed, which in this case was 31.03.2013. The notice dated 02.02.2018 was thus claimed to be barred by limitation. The Tribunal agreed with the appellant, noting that the AO had consciously applied his mind to the appellant’s claim for deduction under Section 80IC on two separate occasions (30.11.2009 and 19.04.2010). The Tribunal held that the proceedings under Section 263, if any, should have been initiated within two years from the end of FY 2010-11. Consequently, the order dated 22.03.2018 was quashed as it was beyond the limitation period.

2. Erroneous and Prejudicial Reassessment Order:
The appellant contended that the reassessment order dated 09.02.2016 could not be regarded as erroneous and prejudicial to the interests of the Revenue since no addition was made on account of the reasons for which the assessment was reopened. The Tribunal noted that the AO, after conducting independent enquiries, found no discrepancies in the transactions with M/s Bhola Motors Pvt Ltd and assessed the income at the same amount as earlier. The Tribunal held that the AO could not have proceeded with other additions for which no reasons were recorded, and what the AO could not have done directly, the Principal Commissioner of Income Tax (Pr. CIT) could not have done indirectly by exercising revisionary jurisdiction under Section 263.

3. Applicability of Section 92E:
The appellant argued that the provisions of Section 92E were not applicable as they had not entered into any international transactions with associated enterprises (AEs). The Tribunal noted that the provisions concerning specified domestic transactions under Section 92BA were introduced by the Finance Act, 2012, effective from 01.04.2013, and were not applicable for AY 2008-09. The Tribunal found that the issue on which the assessment order was set aside by the Pr. CIT was based on incorrect facts and erroneous interpretation of applicable provisions of law.

4. Scope of AO’s Jurisdiction under Section 147:
The Tribunal observed that the AO initiated reassessment proceedings under Section 147 based on information received regarding transactions with M/s Bhola Motors Pvt Ltd. After finding no discrepancies, the AO was satisfied that no income had escaped assessment. The Tribunal held that once the AO found his reasons to believe to be factually unsustainable, he could not travel to other unrelated issues. The Tribunal cited the decision of the Hon’ble Delhi High Court in CIT Vs Software Consultants, which held that the AO could not make additions on issues unrelated to the reasons recorded for reopening under Section 148.

Conclusion:
The Tribunal concluded that the proceedings under Section 263 were barred by limitation and that the reassessment order dated 09.02.2016 was not erroneous or prejudicial to the interests of the Revenue. The Tribunal also held that the Pr. CIT could not invoke revisionary jurisdiction under Section 263 based on incorrect facts and erroneous interpretation of law. The appeal of the assessee was allowed, and the order dated 22.03.2018 was quashed.