2022 (9) TMI 716 - AT - Income Tax

Revision u/s 263 - period of limitation - Validity of reopening of assessment u/s 147- statutory time period for passing the order giving effect to the order passed under section 263 - AO failed to make verification/investigation in respect of the transaction in bogus long term capital gains/short term capital gains - HELD THAT - From the copy of assessment order dated passed under section 147 r.w.s.144B furnished during the course of hearing, we find that the AO accepted the return income declared by the assessee and made no addition on the ground on which the reassessment proceedings u/s 147 of the Act were initiated. Since, only the validity of the order passed u/s 263 of the Act is under challenge in the present case and in view of the current position of fact that no order has been passed by the AO, pursuant to the directions issued vide impugned order, within the time limit provided u/s 153(3) read along with the proviso and as extended by various notifications issued by the CBDT, as referred to hereinabove, the present appeal is rendered academic in nature, in the present case, and therefore, is dismissed as infructuous. However, liberty is granted to both the parties to seek recall of this order, if, at a later point of time, it is found that the order was, in fact, passed by the Assessing Officer pursuant to the directions issued vide impugned order dated 05/03/2020 passed under section 263. Appeal of assessee dismissed.

Summary

Issues Involved:
1. Breach of the Principles of Natural Justice
2. Legality of the Revision Order under Section 263 of the Income Tax Act, 1961
3. Merits of the Revision Order under Section 263 of the Income Tax Act, 1961

Detailed Analysis:

1. Breach of the Principles of Natural Justice:
The assessee contended that the Principal Commissioner of Income Tax (PCIT) erred in framing the revision order under Section 263 of the Income Tax Act, 1961 without providing a proper, sufficient, and effective opportunity of being heard. The assessee argued that the revision order was bad and illegal as it was passed in breach of the principles of natural justice and with non-application of mind to the facts and contentions brought on record by the assessee.

2. Legality of the Revision Order under Section 263 of the Income Tax Act, 1961:
The assessee challenged the legality of the order passed by the PCIT under Section 263 of the Act, revising the assessment order passed by the Assessing Officer (AO) under Section 143(3) of the Act. The assessee submitted that the order was bad, illegal, and void as the necessary pre-conditions for initiating the revision proceedings and their completion were not fulfilled. Specifically, the assessee argued that the assessment order was neither "erroneous" nor "prejudicial to the interest of the revenue" within the meaning of Section 263 of the Act.

3. Merits of the Revision Order under Section 263 of the Income Tax Act, 1961:
The assessee contended that on merits, no revision under Section 263 of the Act was called for. The revision order was based on information received from the Directorate of Income Tax (Investigation), Kolkata, regarding companies engaged in penny stock transactions and providing bogus long-term capital gains/short-term capital gains to beneficiaries. The PCIT held that the loss incurred by the assessee on transactions in shares of M/s Sulabha Engineering was a bogus short-term capital loss and should have been disallowed. The PCIT set aside the assessment order and directed the AO to make a detailed verification/investigation.

Judgment:
The Tribunal noted that no order had been passed by the AO pursuant to the directions issued under the impugned order within the statutory time limit provided under Section 153(3) of the Act, as extended by various notifications due to the COVID-19 pandemic. The Tribunal found that the time limit for passing any order by the AO pursuant to the directions issued in the impugned order had expired on 30/09/2021.

The Tribunal also observed that reassessment proceedings were initiated under Section 147 of the Act on the same information, but no addition was made by the AO, and the returned income declared by the assessee was accepted.

Given that the AO did not pass any order within the statutory time limit, the Tribunal concluded that the present appeal was academic in nature and dismissed it as infructuous. However, the Tribunal granted liberty to both parties to seek recall of the order if it was found that the order was, in fact, passed by the AO pursuant to the directions issued in the impugned order.

Conclusion:
The appeal by the assessee was dismissed as infructuous due to the expiry of the statutory time limit for passing the order by the AO pursuant to the directions issued under Section 263 of the Act. The Tribunal emphasized that the validity of the revision order became academic as no consequential order was passed within the prescribed time frame.