2020 (11) TMI 374 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 - Settlement commission order - HELD THAT - There is no infirmity in the application for settlement commission made by the assessee before the ITSC on 5 December 2019 and therefore the learned CIT cannot have assumed the jurisdiction u/s 263 - The settlement commission has also passed an order admitting the application of the assessee u/s 245D (1) on 18 December 2019. The settlement commission assumes exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority in relation to the case from the date on which the application is made and until an order u/s 245D (4) of the act is passed. In the present case therefore from 5 December 2019 till the order u/s 245D (4) of the act is passed the only authority which can exercise the jurisdiction for the income tax matters is only settlement commission. This issue was also raised before the settlement commission which dealt with it in the similar manner. Therefore also we are of the view that assumption of jurisdiction by the learned and CIT in passing an order u/s 263 of the act on 30th of March 2020 is not proper. Revisionary proceedings is assessment of the short-term capital gain earned by the assessee on sale of shares - This issue has already been considered by the settlement commission which has been offered by the assessee as an additional income on which tax at appropriate rate is payable. Therefore even otherwise there is no prejudice caused to the revenue because assessee has already offered the above income as additional income before the settlement commission. Only grievance of the revenue to say that the order is erroneous and prejudicial to the interest of the revenue for the reason that assessee has been saved from penalty and prosecution on the issue. We have carefully considered the argument of the learned CIT DR on this aspect and find that when a specific authority is given to the settlement commission u/s 245H of the act to grant immunity from prosecution and penalty. Therefore when a settlement commission is given a special power to grant immunity from prosecution and penalty Under the income tax act itself it cannot be said that assumption of jurisdiction by the settlement commission in accordance with the law wherein there are chances for waiver of penalty as well as immunity from prosecution is an order which will constitute prejudicial to the interest of the revenue. More so there is no error in such order which is yet to be passed. The assessee may get and immunity from prosecution and penalty order or it may not get. Therefore such situation cannot be preempted to assume jurisdiction u/s 263 of the act. We quash the order passed by the learned CIT u/s 263 - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Validity of the order passed under Section 263.
3. Examination of short-term capital gains (STCG) and its nature.
4. Proceedings before the Income Tax Settlement Commission (ITSC).
5. Adequate opportunity and principles of natural justice.
6. Impact of COVID-19 lockdown on the order's validity.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The appeals challenge the jurisdiction assumed by the Principal Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, arguing that the assessment order passed under Section 143(3) was neither erroneous nor prejudicial to the interest of the revenue. The CIT's jurisdiction was questioned based on the provisions of Section 245F and other related sections, asserting that only the ITSC had jurisdiction over the matter.

2. Validity of the Order Passed Under Section 263:
The CIT issued a notice under Section 263, stating that the assessment order was erroneous and prejudicial to the interest of the revenue. The CIT noted discrepancies in the assessment of STCG, agricultural income, property transactions, and purchase of brand rights. The CIT directed a de novo assessment focusing on the nature and quantum of STCG, the source of investment, and the timing of payments, among other points.

3. Examination of Short-Term Capital Gains (STCG) and Its Nature:
The CIT observed that the assessee's transactions in shares appeared to be in the nature of trade rather than investment, suggesting that the STCG should be taxed as business income at 30% instead of 15%. The CIT also raised doubts about the genuineness of the share transactions, citing off-market transactions and potential accommodation entries.

4. Proceedings Before the Income Tax Settlement Commission (ITSC):
The assessee argued that the proceedings before the CIT should be abated as the matter was already before the ITSC. The ITSC had admitted the assessee's application for settlement, which included the same issues under scrutiny by the CIT. The Tribunal noted that the ITSC assumes exclusive jurisdiction from the date of the application until an order under Section 245D(4) is passed, making the CIT's jurisdiction under Section 263 invalid.

5. Adequate Opportunity and Principles of Natural Justice:
The assessee contended that the CIT's order was passed without providing adequate opportunity for hearing, violating the principles of natural justice. The Tribunal noted that the last hearing was on 21 October 2019, and the order was passed on 30 March 2020, during the COVID-19 lockdown, without any further hearing, which was deemed unfair.

6. Impact of COVID-19 Lockdown on the Order's Validity:
The assessee argued that the order passed on 30 March 2020 was unsustainable due to the complete lockdown and extension of limitation periods. The Tribunal acknowledged the lockdown and extended limitation, supporting the assessee's contention that the order was invalid due to the extraordinary circumstances.

Conclusion:
The Tribunal quashed the order passed by the CIT under Section 263, holding that the ITSC had exclusive jurisdiction over the matter from the date of the application. The Tribunal also found that the CIT's order was passed without adequate opportunity for hearing and during the COVID-19 lockdown, making it unsustainable in law. Consequently, the appeals were allowed, and the other aspects were kept open.

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