2021 (6) TMI 945 - AT - Income Tax

Revision u/s 263 - Jurisdiction of AO - AO failed to verify the genuineness of the exemption of Long Term Capital Gain claim - proceedings u/s. 143(3) the notice u/s. 143(2) dated 16/09/2016 was issued by the ITO, Ward 72(5), Delhi, while assessment proceedings u/s. 143(3) for the preceding Assessment Year 2014-15 were still going on before DCIT, Circle 25(2), New Delhi - HELD THAT - The first notice under Section 143(2) was issued on 01.08.2016 which by the non-jurisdictional AO and jurisdictional AO issued the notice on 10.03.2017 which is beyond the limitation period as per the statutory provisions of the Act. Thus, the notice is time barred and hence, the assessment itself becomes void-ab-initio. Besides this, the proper jurisdiction of the Assessing Officer in the present case is that of DCIT, Circle 25(2) as the assessment for A.Y. 2014-15 was proceeded before the said Assessing Officer in assessee's case. There was no change of jurisdiction sought by the Revenue as per Section 124 read with Section 120 of the Income Tax Act, 1961. Thus, on the point of jurisdiction relating to issuance of notice also makes the notice under Section 143(2) void-ab-initio. These aspects were not challenged by the assessee as the Assessing Officer assessed the income of the assessee at Nil and the assessee therefore, never challenged the assessment order at any stage. As the assessment itself becomes bad in law and therefore, the order of the Principal CIT under Section 263 of the Income Tax Act, 1961 itself becomes nullity as there is no assessment order in the eyes of law. Therefore, the additional grounds are allowed. Bogus LTCG - The notice which was issued by the Principal CIT stating therein that the Assessing Officer failed to verify the genuineness of the exemption of Long Term Capital Gain claim on the sale of shares of M/s. Channel - Nine and also that of the Assessing Officer failed to enquire about the persons who have purchased the above mentioned shares at a high rate of ₹ 439 per share, appears to be incorrect. The Principal CIT has not at all taken into consideration the reconciliation in respect of Long term capital gain. AO in the instant case has verified all the aspects and therefore, the view taken by the Principal CIT is only a second view which is not permissible under Section 263 of the Act. It is the settled proposition of law that for invoking jurisdiction under Section 263, the twin conditions, namely, the order is erroneous and the order is prejudicial to the interest of the Revenue must be satisfied. In the instant case, since the Assessing Officer has called for various details and after verification of the same has passed the order, therefore, the same cannot be treated as erroneous, as held by Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT Hence, the Assessment order though does not sustain in eyes of law in light of the defective notice under Section 143(2), the proceedings under Section 263 also does not survive on merit. Therefore, the appeal of the assessee is allowed.

Summary

Issues:
Appeal against order passed by Principal CIT under Section 263 of the Income Tax Act, 1961 for assessment year 2015-16.

Detailed Analysis:

1. Jurisdictional Issue:
The appeal was filed against the order passed by the Principal CIT under Section 263 of the Income Tax Act for the assessment year 2015-16. The Principal CIT set aside the original assessment order and directed the Assessing Officer to pass a fresh assessment order. The key contention raised was regarding the jurisdictional aspect. It was argued that the notice under Section 143(2) was issued by an officer who did not have jurisdiction over the case of the assessee. The jurisdictional Assessing Officer issued a notice after the prescribed time limit, rendering the proceedings and subsequent assessment order as void-ab-initio. The additional grounds challenging jurisdiction were allowed, highlighting the fundamental flaw in the assessment process.

2. Merits of the Assessment:
The Principal CIT's order under Section 263 was challenged on merit as well. The Principal CIT alleged that the Assessing Officer failed to verify the genuineness of the exemption claimed on long-term capital gains from the sale of shares. However, it was argued that the Assessing Officer did examine the relevant details provided by the assessee, including reconciliation related to long-term capital gains. The Tribunal noted that the Principal CIT did not consider this reconciliation and overlooked the verification done by the Assessing Officer. The Tribunal emphasized that for invoking jurisdiction under Section 263, the order must be both erroneous and prejudicial to the revenue's interest. Since the Assessing Officer had conducted a thorough verification and passed the order, the Tribunal concluded that the Principal CIT's order did not stand on merit.

3. Additional Grounds and Precedents:
The Tribunal admitted additional grounds raised by the assessee, focusing on jurisdictional issues and the validity of the assessment process. The Tribunal analyzed various legal precedents cited by both parties to support their arguments. The Tribunal highlighted the importance of proper jurisdiction in issuing notices and the necessity for assessments to comply with statutory provisions. The decision underscored the significance of adherence to legal procedures and the requirement for assessment orders to be both legally sound and substantively accurate.

4. Final Decision:
After a detailed examination of the jurisdictional issues, assessment process, and merits of the Principal CIT's order under Section 263, the Tribunal allowed the appeal of the assessee. The Tribunal found that the assessment order, though flawed due to jurisdictional defects, did not warrant intervention under Section 263 based on the merits of the case. The decision emphasized the need for assessments to be conducted diligently and in accordance with legal requirements to ensure the integrity of the tax administration process.

In conclusion, the Tribunal's judgment addressed the jurisdictional challenges, the assessment process, and the substantive merits of the Principal CIT's order under Section 263, ultimately ruling in favor of the assessee and allowing the appeal.