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2020 (8) TMI 272 - AT - Income TaxRevision u/s 263 - Period of limitation - service of the order - HELD THAT - Assessment order u/s.143(3) of the Act was passed on 22.03.2013 and the Pr. CIT has passed his order on 30.03.2015, therefore, the order is within two years from the relevant date. From the reading of the provisions of Section 263(2) of the Act, it is clear that there is no mention about the service of the order, however, it is only mentioned that the order shall be made . With regard to service it has clearly been defined in the section 143(2) of the Income Tax Act but in section 263 of the Act nowhere about service of order has been mentioned. Therefore, this argument of the assessee with regard to ground No.1, is dismissed. No adequate opportunity of hearing has been provided by the Pr. CIT before passing the order - In the present case, we find that the assessee was not afforded opportunity, much less the sufficient opportunity to give reply to the show cause notice. Therefore, it is clear that the Pr. CIT in a hurriedly manner without affording opportunity of hearing to assessee had passed impugned order by violating principle of audi alteram partem. In view of above factual position as well as the judicial pronouncements cited supra, we are of the opinion that the Pr.CIT has committed a gross error in not providing any effective/reasonable opportunity of being heard to the assessee before passing the order. Accordingly, we quash the revisional proceedings framed u/s.263 of the Act by the Pr. CIT - Decided in favour of assessee.
Issues Involved:
1. Legality of the order under Section 263 of the IT Act, 1961. 2. Adequacy of opportunity given to the assessee to respond to the show cause notice. 3. Validity of the service of notice under Section 263. 4. Jurisdiction of the Pr. CIT in invoking Section 263. 5. Consistency in the method of accounting for the valuation of closing stock. 6. Adequacy of the Assessing Officer's (AO) verification and enquiry during the original assessment. 7. Timeliness of the service of the order under Section 263. Issue-wise Detailed Analysis: 1. Legality of the Order under Section 263: The assessee contended that the order dated 30.03.2015 under Section 263 was illegal, arbitrary, and against the facts on record. The Tribunal noted that the Pr. CIT invoked Section 263 on the grounds that the AO's order was erroneous and prejudicial to the interest of the revenue due to improper valuation of closing stock. The Pr. CIT directed the AO for fresh adjudication after giving a reasonable opportunity to the assessee. 2. Adequacy of Opportunity Given: The assessee argued that the show cause notice issued on 20.03.2015, requiring clarification by 27.03.2015, did not provide adequate opportunity, violating the principle of natural justice. The Tribunal acknowledged that the notice was served on 23.03.2015, giving only four days for compliance. The Tribunal emphasized that the right to fair hearing is fundamental, and the Pr. CIT should have provided a more reasonable opportunity. The Tribunal quashed the order under Section 263 due to inadequate opportunity, citing the principle of "audi alteram partem." 3. Validity of the Service of Notice: The assessee claimed that the notice was neither served on them nor their authorized agent, making the service void ab initio. However, the Tribunal found that the notice was indeed served on 23.03.2015, as acknowledged by the assessee in the original grounds of appeal. The Tribunal dismissed the additional ground challenging the service of notice as it contradicted the initial claim. 4. Jurisdiction of the Pr. CIT: The assessee argued that the Pr. CIT lacked jurisdiction as the twin conditions of the order being erroneous and prejudicial to the revenue were not satisfied. The Tribunal referred to the Supreme Court's decision in Malabar Industrial Co. Ltd., which mandates both conditions for invoking Section 263. The Tribunal found that the Pr. CIT's order failed to provide adequate opportunity, thus violating the principles of natural justice and rendering the order invalid. 5. Consistency in the Method of Accounting: The assessee maintained that they consistently followed the same method of accounting for the valuation of closing stock, which was lower of cost or market value. The Tribunal noted that the statutory auditor confirmed no change in the method of accounting. The Tribunal agreed that consistency in accounting methods nullifies the impact over time, supporting the assessee's position. 6. Adequacy of AO's Verification and Enquiry: The Pr. CIT argued that the AO failed to conduct proper verification and enquiry regarding the valuation of closing stock. The Tribunal found that the AO had examined the audited accounts and other documents during the original assessment. The Tribunal held that mere disagreement with the AO's approach does not justify invoking Section 263 unless the AO's view is unsustainable in law. 7. Timeliness of the Service of the Order: The assessee contended that the order under Section 263 was served on 04.04.2015, beyond the financial year end, making it invalid. The Tribunal clarified that Section 263(2) requires the order to be "made" within two years from the end of the financial year in which the order sought to be revised was passed. The Tribunal found that the order was made on 30.03.2015, within the stipulated time, dismissing the assessee's argument on this ground. Conclusion: The Tribunal quashed the revisional proceedings under Section 263 due to the violation of the principles of natural justice, specifically the inadequate opportunity provided to the assessee. Other grounds raised by the assessee were rendered infructuous. The appeal was partly allowed in favor of the assessee.
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