2020 (12) TMI 207 - AT - Income Tax

Revision u/s 263 - Validity of original assessment order since the notice u/s 143(2) was issued prior to issue of notice u/s 148 - unsecured loans received by the assessee from various companies - HELD THAT - We hold that the order passed u/s. 263 19/03/2019, as bad in law. It is wrong both on facts as well as law. Enquiries were made by the AO and the AO on such enquiries has taken a possible view. The very reason for reopening is the ground for proposing the revision. This is not permissible in law. As regards the arguments of the assessee that the validity of the reassessment proceedings can be challenged during the course of challenging the revisionary order u/s. 263 we are of the opinion that law is in the favour of such arguments. Jurisdictional issue, can be raised even in collateral proceedings. At the same time, we are unable to uphold the contention of the assessee that the reassessment order itself would become bad in law, if the reason recorded for reopening does not ultimately result in an addition being made by the Assessing Officer. No addition has been made in this case. What the Courts of law have said on this issue is that, if an addition is not made for the reasons which are recorded for reopening of the assessment, no other addition can be made on some other grounds which do not form part of the reasons recorded for reopening. If an Assessing Officer accepts the return of income of the assessee on reopening of an assessment, such assessment order does not become an illegal assessment order. The Courts never said that the reassessment order would be bad in law. Thus, this argument of the assessee is dismissed as devoid of merit. Notice u/s. 148 of the Act has been issued to the assessee on 24/02/2016 as is evident from the copy of the notice place at page 6 of the paper book. From the order sheet entry it is clear that the assessee, on 24/03/2016, requested the Assessing Officer to treat the original return of income filed by it for the Assessment Year 2009-10, as that return of income which is filed in response to notice u/s. 148 of the Act. From the order sheet entries, it is clear that notice u/s. 143(2) of the Act was issued on 24/02/2016. This fact is also mentioned by the Assessing Officer at para 5 of his order. This proves that the notice u/s. 143(2) of the Act, was issued much prior to the assessee filing his return of income. This is not in accordance with law. Hence the order passed u/s. 148 of the Act without issuing valid notice u/s. 143(2) of the Act, makes the reassessment order dt. 20/05/2016, passed u/s. 143(3)/147 of the Act, bad in law. Consequently, the revision of the assessment u/s. 263 of the Act dt. 19/03/2019, revising such illegal assessment order is also bad in law. Thus, for all these reasons we quash the order passed by the ld. Pr. CIT u/s. 263 of the Act as bad in law and allow the appeal of the assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Validity of the order passed under section 263 of the Income Tax Act.
3. Examination and acceptance of unsecured loans by the Assessing Officer.
4. Adequacy of enquiries conducted by the Assessing Officer.
5. Authority of the Principal Commissioner of Income Tax (Pr. CIT) to revise the assessment order.
6. Legality of the reassessment order passed under sections 143(3) and 147 of the Income Tax Act.
7. Issuance of notice under section 143(2) prior to the filing of the return in response to notice under section 148.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 126 days. After reviewing the petition for condonation, the tribunal was convinced that the delay was due to sufficient cause, and thus, the delay was condoned, and the appeal was admitted.

2. Validity of the Order Passed Under Section 263:
The assessee argued that the order passed under section 263 was bad in law for several reasons:
- The assessment was reopened to verify unsecured loans of ?1.74 Crores, which were accepted as genuine by the Assessing Officer after due examination.
- The Pr. CIT cannot revise the assessment order for the same reasons that were already examined and accepted by the Assessing Officer.
- The Pr. CIT did not conduct any independent enquiry or verification to conclude that the order required revision.
- The reassessment order did not result in any addition based on the reasons for which the revision was proposed.

3. Examination and Acceptance of Unsecured Loans:
The Assessing Officer conducted enquiries, obtained information from third parties, and was satisfied with the identity and creditworthiness of the sundry creditors. The loans were accepted as genuine, and no addition was made in the reassessment order.

4. Adequacy of Enquiries Conducted by the Assessing Officer:
The tribunal noted that the Assessing Officer had conducted adequate enquiries and obtained third-party information before accepting the loans as genuine. The Pr. CIT's assertion that no enquiry was conducted was factually incorrect. The tribunal emphasized that inadequate enquiry cannot be a ground for revision under section 263.

5. Authority of the Pr. CIT to Revise the Assessment Order:
The tribunal referred to various judgments, including Malabar Industrial Co. Ltd., Max India Ltd., and others, to highlight the principles governing the exercise of jurisdiction under section 263. It was established that the Pr. CIT must be satisfied that the order is both erroneous and prejudicial to the interests of the revenue. In this case, the Pr. CIT failed to demonstrate that the order was erroneous or prejudicial, and thus, the revision was not justified.

6. Legality of the Reassessment Order:
The tribunal held that the reassessment order passed under sections 143(3) and 147 was not bad in law merely because no addition was made based on the reasons recorded for reopening. The tribunal dismissed the assessee's argument that the reassessment order would become illegal if no addition was made for the reasons recorded for reopening.

7. Issuance of Notice Under Section 143(2):
The tribunal found that the notice under section 143(2) was issued on 24/02/2016, prior to the assessee filing the return of income in response to the notice under section 148. This was not in accordance with the law, making the reassessment order passed on 20/05/2016 invalid. Consequently, the revision of such an illegal assessment order under section 263 was also deemed invalid.

Conclusion:
The tribunal quashed the order passed by the Pr. CIT under section 263 as bad in law and allowed the appeal of the assessee. The reassessment order was found to be invalid due to the improper issuance of notice under section 143(2), and the revision of such an order was also invalid. The appeal was allowed in favor of the assessee.