2022 (3) TMI 524 - AT - Income Tax

Revision u/s 263 by CIT - assessment was sought to be reopened by the ld. AO u/s. 147 on the ground that assessee had not offered profit earned to tax on surrender of purchase of pension policy from Bajaj Alliance Insurance Company - HELD THAT - The issue which is sought to be revised by the ld. PCIT in Section 263 proceedings was already considered and decided by the ld. CIT(A) in the hands of the assessee for A.Y. 2011-12. As per the provisions of Clause (c) of Explanation to Section 263(1) of the Act, the matter which has already been considered and decided by the ld. CIT(A) cannot be the subject matter of revision by the ld. PCIT u/s. 263 of the Act. Even though no addition was made by the ld. AO in Section 147 assessment dated 12/12/2018 in line with order of ld. CIT(A), still in our considered opinion, there would be no prejudice that would be caused to the Revenue as the additional disallowance contemplated by the ld. CIT(A) u/s. 14A of the Act would be made in either case by the ld. AO in the order giving effect proceedings to the ld. CIT(A). Hence, there is absolutely no prejudice that would be caused to the interest of the Revenue. Hence, one of the pre-requisite of invoking Section 263 of the Act fails. PCIT herein is only seeking to revise the order passed by the ld. AO u/s. 143(3) r.w.s. 147 of the Act dated 12/12/2018. In the said re-assessment proceedings, the ld. AO had not even made any addition despite the fact that he had reason to believe that income of ₹ 11,55,330/- had escaped assessment in the hands of the assessee which was sought to be taxed u/s. 56 of the Act as per the reasons recorded. Hence, when the very basis of reasons recorded by the ld. AO was ultimately not added by the ld. AO in the re-assessment proceedings, then the primary reason to believe that income of the assessee had escaped assessment fails and such re-assessment cannot be treated as a valid order in the eyes of law. The same is to be declared as void ab initio. Reliance in this regard was rightly placed on the decision of Jet Airways 2010 (4) TMI 431 - HIGH COURT OF BOMBAY When an assessment framed by the ld. AO is unsustainable in the eyes of law, the said invalid and illegal order cannot be subject matter of section 263 proceedings. On this count also, the revision order passed by the ld. PCIT u/s. 263 of the Act deserves to be quashed. - Decided in favour of assessee.

Summary

Issues:

1. Validity of assumption of revisionary jurisdiction u/s. 263 of the Act by PCIT.
2. Disallowance of investment transaction fees u/s. 14A of the Act.

Issue 1: Validity of assumption of revisionary jurisdiction u/s. 263 of the Act by PCIT

The case involved an appeal against the revision order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act for the assessment year 2011-12. The PCIT sought to revise the assessment completed by the Assessing Officer (AO) based on certain grounds. The AO had reopened the assessment under section 147, focusing on aspects such as surrender of a pension policy and investments in mutual funds. The PCIT contended that the AO's order was erroneous and prejudicial to the Revenue as the AO did not disallow an amount debited as 'investment transaction fees.' However, the tribunal noted that the AO had examined the relevant aspects during reassessment and accepted the returned income of the assessee. The tribunal observed that the PCIT's revision was based on an issue already considered and decided by the CIT(A) for the same assessment year. As per the Explanation to Section 263(1) of the Act, matters already decided by the CIT(A) cannot be revised by the PCIT. The tribunal concluded that there was no prejudice to the Revenue, and the PCIT's revision order was quashed.

Issue 2: Disallowance of investment transaction fees u/s. 14A of the Act

The tribunal delved into the details of the disallowance of investment transaction fees under section 14A of the Act. The assessee had voluntarily made disallowances under section 14A in the original assessment, which was contested before the CIT(A). The CIT(A) restricted the disallowance to the investment transaction fees, which was confirmed for the assessment year 2011-12. The tribunal highlighted that the CIT(A)'s order became final as there was no appeal by the assessee. The PCIT, in the revision proceedings, sought to reconsider the same issue. However, the tribunal emphasized that when the AO did not make any addition despite reasons to believe income had escaped assessment, the reassessment order was deemed invalid. Citing legal precedent, the tribunal declared the reassessment void ab initio. Consequently, the tribunal quashed the PCIT's revision order under section 263 of the Act, allowing the assessee's appeal.

In conclusion, the tribunal addressed the issues of the validity of revisionary jurisdiction under section 263 and the disallowance of investment transaction fees under section 14A of the Income Tax Act for the assessment year 2011-12. The tribunal found in favor of the assessee, quashing the PCIT's revision order and allowing the appeal.