2020 (5) TMI 360 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 - disallow expenditure on purchases from overseas in terms of Section 40(a)(i) for non deduction of tax at source from such payment - HELD THAT - Reassessment order was passed on 26.03.2015 after making disallowance of purchase. Aggrieved thereto petitioner has filed appeal before CIT(Appeals) under Section 246A(1)(b), which is pending. PCIT has issued impugned notice dated 08.06.2016 under Section 263 on the ground that assessment order dated 26.03.2015 passed u/s 143(3) was erroneous and prejudicial to the interest of Revenue inasmuch as sales tax subsidy accruing to petitioner under scheme of Government of Maharashtra had not been brought to tax as revenue receipt . As contended that aforesaid notice dated 08.06.2016 is barred by limitation u/s 263. As the issue of taxability of sales tax subsidy as per Maharashtra Government was not at all an issue of reopening of the assessment, Hon court held that limitation for 263 proceedings will start from the original assessment order. Issues subject to revision were pertaining to original assessment and not the reopened assessment; the limitation should also start from the original assessment. In this case as original assessment order u/s 143(3) of the act was passed on 16.01.2014, the revision thereof could have been taken up to 31.3.2016. Impugned order u/s 263 of the act was passed on 26/2/2019, therefore it is clearly beyond the limitation prescribed u/s 263 (2) of the act. Thus the impugned order is barred by limitation and hence quashed. - 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. Validity of proceedings initiated under Section 263 based on a draft order.
3. Prematurity of the order passed by the PCIT under Section 263.
4. Requirement for a draft assessment order in cases involving references to the Transfer Pricing Officer.
5. Limitation period for passing an order under Section 263.
6. Jurisdictional validity of the reassessment order dated 30.12.2016.
7. Satisfaction of twin conditions under Section 263: assessment order being erroneous and prejudicial to the interests of the Revenue.
8. Consideration of the assessee's reply and objections by the PCIT.
9. Examination of quantum of production/mined quantities of iron ore.
10. Jurisdiction of the PCIT in setting aside the reassessment order on specific issues.
11. Specificity of the grounds for setting aside the reassessment order.
12. Independent inquiry by the PCIT.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961:
The PCIT has the authority under Section 263 to revise any order passed by the Assessing Officer if it is found to be erroneous and prejudicial to the interest of the Revenue. The PCIT must base the revision on records available at the time of examination.

2. Validity of proceedings initiated under Section 263 based on a draft order:
The assessee argued that the proceedings initiated under Section 263 were based on a draft order, which was in contravention of the High Court's direction. However, the PCIT proceeded with the revision based on the final assessment order passed on 30.12.2016.

3. Prematurity of the order passed by the PCIT under Section 263:
The assessee contended that the order passed by the PCIT was premature as the reassessment order itself was pending before the Punjab and Haryana High Court, and its implementation was stayed. The Tribunal found that the PCIT's order was not premature as it was based on the assessment order passed by the AO.

4. Requirement for a draft assessment order in cases involving references to the Transfer Pricing Officer:
The assessee argued that the AO should have passed a draft assessment order instead of a final assessment order, as a reference was made to the Transfer Pricing Officer. The Tribunal did not find merit in this argument as the reassessment proceedings were based on different grounds.

5. Limitation period for passing an order under Section 263:
The assessee argued that the order passed by the PCIT was barred by limitation. The Tribunal held that the limitation period for passing an order under Section 263 should run from the original assessment order passed under Section 143(3), which expired on 31.03.2016. As the impugned order under Section 263 was passed on 26.02.2019, it was beyond the prescribed time limit and hence quashed.

6. Jurisdictional validity of the reassessment order dated 30.12.2016:
The assessee contended that the reassessment order was without jurisdiction, illegal, and bad in law. The Tribunal found that the reassessment proceedings were initiated based on specific reasons recorded by the AO, and the reassessment order was validly passed.

7. Satisfaction of twin conditions under Section 263: assessment order being erroneous and prejudicial to the interests of the Revenue:
The PCIT held that the AO failed to make specific inquiries regarding the production of iron ore as mentioned in the Justice MB Shah Commission report. The Tribunal found that the twin conditions under Section 263 were not satisfied as the issues raised in the revision proceedings were not part of the reassessment proceedings.

8. Consideration of the assessee's reply and objections by the PCIT:
The assessee argued that the PCIT did not consider its reply and objections. The Tribunal found that the PCIT considered the assessee's submissions and various judicial precedents before passing the order under Section 263.

9. Examination of quantum of production/mined quantities of iron ore:
The PCIT set aside the reassessment order on the issue of examining the quantum of production/mined quantities of iron ore based on the Justice MB Shah Commission report. The Tribunal found that the issue of production was not part of the reassessment proceedings and could not be a ground for revision under Section 263.

10. Jurisdiction of the PCIT in setting aside the reassessment order on specific issues:
The PCIT exceeded his jurisdiction by setting aside the reassessment order on issues that were not part of the reassessment proceedings. The Tribunal held that the PCIT could not revise an order on grounds that were not the subject matter of the reassessment proceedings.

11. Specificity of the grounds for setting aside the reassessment order:
The PCIT set aside the reassessment order on vague and general grounds without pointing out specific errors. The Tribunal found that the PCIT failed to provide specific reasons for setting aside the reassessment order, making the revision order invalid.

12. Independent inquiry by the PCIT:
The assessee argued that the PCIT did not carry out an independent inquiry before passing the order under Section 263. The Tribunal found that the PCIT did not make any independent inquiries and relied solely on the Justice MB Shah Commission report, which was not sufficient to justify the revision.

Conclusion:
The Tribunal quashed the order passed by the PCIT under Section 263 on the grounds that it was barred by limitation and the twin conditions under Section 263 were not satisfied. The appeal of the assessee was allowed on the issue of the impugned order being passed beyond the prescribed time, and other issues were left open.

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