2020 (9) TMI 401 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 - Client Code Modification misuse for tax evasion - PCIT invoked the provisions of section 263 on the ground that AO has failed to examine interest expenditure claimed in the P L Account, assessee did not have its own capital, therefore, the loan was given from borrowed funds - PCIT observed that the assessee has not shown any interest from borrowed money, as such, interest expenditure debited to the P L Account was required to be disallowed in proportion to money borrowed but not used for business purpose - HELD THAT - As perused the impugned order and the assessment order passed under section 143(3) r.w.s. 147. A perusal of the assessment order shows that the assessment was reopened to examine misuse of Client Code Modification for tax evasion. No addition was made by the Assessing Officer in respect of the issue for which the assessment was reopened. It is a well settled law that where no addition is made on the issue for which the assessment is reopened, it is not open to the Assessing Officer to make independent addition for which he had not recorded reason to believe for issuing notice u/s 148. No error in the action of AO in not travelling to other issues for making addition once no addition was made on the issue for which assessment was reopened. The PCIT clearly erred in invoking revisional jurisdiction on an issue, which the Assessing Officer could not have examined in reassessment proceedings. Appeal of assessee is allowed.

Summary

Issues:
1. Interpretation of provisions under section 263 of the Income Tax Act, 1961.
2. Scope of examination in reassessment proceedings.
3. Application of legal principles in revising an assessment order.
4. Time limit for pronouncement of orders by the Tribunal during extraordinary circumstances.

Analysis:
1. The judgment by the Appellate Tribunal ITAT Mumbai dealt with an appeal against an order passed under section 263 of the Income Tax Act, 1961. The issue revolved around the invocation of revisional jurisdiction by the Principal Commissioner of Income Tax-1, Nasik, based on the failure of the Assessing Officer to examine interest expenditure claimed by the assessee. The Tribunal analyzed the legal provisions and held that the Assessing Officer could not have examined additional issues beyond the scope of the original assessment, especially if no additions were made on the matter for which the assessment was reopened.

2. The Tribunal examined the scope of examination in reassessment proceedings and emphasized that when an assessment is reopened for a specific issue, the Assessing Officer cannot independently make additions on unrelated matters unless there is a valid reason to believe for issuing a notice under section 148 of the Act. The Tribunal referred to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Jet Airways (India) Limited to support this legal principle.

3. In applying legal principles, the Tribunal highlighted the importance of adhering to the provisions of section 147 of the Act. The Tribunal cited the judgment of the Hon'ble Jurisdictional High Court in the case of CIT vs. Jet Airways (India) Limited to underscore that once an Assessing Officer accepts the contention of the assessee and finds no income escaping assessment, it is not permissible to independently assess other income without issuing a fresh notice under section 148. The Tribunal concluded that the Principal Commissioner erred in invoking revisional jurisdiction on an issue beyond the scope of the reassessment proceedings.

4. Lastly, the Tribunal addressed the time limit for pronouncement of orders by the Tribunal during extraordinary circumstances, such as the COVID-19 pandemic. Citing the judgment in the case of DCIT vs. JSW Ltd., the Tribunal recognized the need to exclude the period of lockdown from the computation of the 90-day period for pronouncing orders. The Tribunal justified the delay in pronouncing the order due to the unprecedented disruption caused by the pandemic and aligned its decision with the pragmatic approach adopted by the courts in interpreting time limits during such exceptional situations.

In conclusion, the Appellate Tribunal ITAT Mumbai allowed the appeal of the assessee, setting aside the impugned order and emphasizing the importance of legal principles and procedural adherence in assessment proceedings, especially in the context of reassessment and revisional jurisdiction.