2021 (1) TMI 471 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 - HELD THAT - When re-opening of the assessment proceedings started it was on the basis that some income had escaped assessment on the amount of remuneration to the directors since the assessee did not comply with Section 297 and 314(1B) of the Company Act 1956 - Assessee gave detailed reply to the AO satisfying him that these provisions are not applicable in his case. AO therefore stopped the re-opening proceedings and accepted the original assessment passed u/s.143(3) with the total loss shown of (-) 6, 25, 277/- dated 29.12.2016 vide order u/s.143(3) r.w.s 147. Therefore it cannot be said that the AO has not applied his mind and has not made any enquiry. Whether the Ld. Pr. Commissioner of Income Tax in exercising of his power vested u/s. 263 can revise that reassessment order with the intention of bringing into tax some other items which do not form part of the reasons recorded at the time of issuing notice u/s.148? - In answer to this we find the Hon ble Jurisdictional High Court in the case of CIT Vs. Jet Airways (I) Ltd. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY and in the case of CIT Vs. Shri Ram Singh 2008 (5) TMI 200 - RAJASTHAN HIGH COURT has held that when no addition was made regarding the item in respect of which reasons were recorded for reopening of the assessment the Commissioner could not exercise his jurisdiction u/s.263 of the Act in order to bring to tax other items of additions. Proceedings undertaken u/s.147/148 was prima facie on the issue of remuneration of 2, 00, 19, 537/- paid to the directors of the assessee. Pr. Commissioner of Income Tax in his order surpassed his jurisdiction asking the AO to examine the issue of sale of immovable property by the assessee and issue of undisclosed TDS to be verified by the AO which were not at all the items forming part of the reasons recorded at the time of issuance of notice u/s.148. Taking we are of the considered view that the Commissioner of Income Tax was not correct in law while resorting to passing order u/s.263 and in view thereof we quash the order passed u/s.263. Appeal of the assessee is allowed.

Summary

Issues:
1. Assumption of revisionary jurisdiction u/s.263 of the Income Tax Act by the Ld. Pr. Commissioner of Income Tax.
2. Contravention of provisions of Section 297 and 314(1B) of the Company Act, 1956.
3. Reasonableness of Director's remuneration under Section 40A(2)(b) of the Act.
4. Sale of immovable property involving transaction amount.
5. Undisclosed TDS.

Issue 1:
The appeal challenges the assumption of revisionary jurisdiction u/s.263 of the Income Tax Act by the Ld. Pr. Commissioner of Income Tax. The Pr. Commissioner found the assessment order prejudicial to the revenue due to various grounds, including contravention of Company Act provisions, reasonableness of director's remuneration, sale of immovable property, and undisclosed TDS. The Tribunal analyzed the facts, previous assessments, and legal precedents to determine if the Assessing Officer applied due diligence and inquiry, concluding that the Pr. Commissioner's order was not justified.

Issue 2:
Regarding the contravention of Company Act provisions, the Pr. Commissioner noted the payment of director's salary without prior approval, deeming it erroneous. However, the Tribunal found that the Assessing Officer had examined the issue and accepted the original assessment, concluding that the Pr. Commissioner's intervention was unwarranted.

Issue 3:
The reasonableness of director's remuneration under Section 40A(2)(b) was raised. The Pr. Commissioner alleged lack of examination by the Assessing Officer, but the Tribunal observed that due diligence was exercised, and the original assessment was accepted, leading to the dismissal of the Pr. Commissioner's revisionary order.

Issue 4:
Concerning the sale of immovable property, discrepancies in transaction details were highlighted. The Tribunal directed the Assessing Officer to verify the transaction's veracity, but ultimately found the Pr. Commissioner's intervention unjustified as it was not part of the original assessment reasons.

Issue 5:
The matter of undisclosed TDS was also addressed. Discrepancies in TDS amounts were noted, leading to directions for verification by the Assessing Officer. The Tribunal concluded that the Pr. Commissioner's order under Section 263 was not legally sound, resulting in the appeal being allowed and the order being quashed.

In summary, the Tribunal's detailed analysis of each issue highlighted the importance of proper application of mind by the Assessing Officer, emphasizing that revisionary jurisdiction under Section 263 should not be used for roving enquiries or to address issues beyond the scope of the original assessment reasons. The judgment ultimately favored the assessee, quashing the Pr. Commissioner's order and allowing the appeal.