2022 (11) TMI 540 - AT - Income Tax

Rectification u/s 154 of the Revision order passed u/s 263 by CIT - Period of limitation - matter was pending before the ITAT - Rectification order passed after the inquiry sought by the ITAT from the CIT - CIT directed the AO to pass fresh assessment order - HELD THAT - Assumption of jurisdiction u/s. 263 to hold an assessment order as erroneous in so far as prejudicial to the interest of on the issues on which final consideration could not be drawn by the CIT while giving directions to the Ld. AO for fresh assessment is going beyond the limitation prescribed u/s. 263 (2) of the Act in the garb of provision of section 154 of the Act. The limitation prescribed u/s. 263(2) of the Act cannot be extended by resorting to the provisions of section 154 of the Act. Such an approach if permitted will never lead to finality of the proceedings invoked u/s. 263 and therefore cannot be appreciated making the provision prescribing the limitation otiose. It is like when a case is reopened say on four issues and addition/disallowance are made only on three of the issues and one is missed for the purpose of making any addition or disallowance. Subsequently by resorting to section 154 addition/disallowance cannot be made on the one issue which was missed in the assessment proceeding completed once the time limit to pass the assessment order has expired. It is an issue of assumption of jurisdiction and not a mistake apparent from record since provisions of section 263 requires the Ld. Pr. CIT to apply his mind by calling for and examining the records and giving the assessee an opportunity of being heard and thereafter forming an opinion/consideration to pass an order by holding it as erroneous in so far as it is prejudicial to the interest of revenue. In the present case we hold that the impugned order u/s. 263 by way of rectification is time barred and liable to be quashed. Also we hold that the original order u/s. 263 has already been quashed on the two issues raised under the first show cause notice by the coordinate bench. There cannot be any occasion for rectification u/s. 154 of the Act for that order which has already been quashed. Accordingly grounds taken by the assessee are allowed.

Summary

Issues:
1. Validity of order passed u/s. 154 without opportunity of hearing
2. Jurisdiction of order u/s. 154 beyond scope of section 154
3. Limitation under section 263 for passing order u/s. 154

Issue 1: Validity of order passed u/s. 154 without opportunity of hearing

The appeal challenged the revision order of Ld. Pr. CIT, Kolkata-1 passed under sections 154 and 263 of the Income-tax Act, 1961, without granting the assessee an opportunity of hearing. The Ld. Pr. CIT had issued three show cause notices, but the final order relegated the issues for further investigation by the Assessing Officer based only on the first show cause notice. The rectification order passed by the Ld. Pr. CIT during the pendency of the appeal modified the original order, leading to objections from the assessee regarding the lack of a hearing opportunity. The coordinate bench of ITAT, Kolkata emphasized the need for an independent appeal for such rectification orders, allowing the assessee to file a separate/fresh appeal as per the provisions of the Act and Income Tax Rules.

Issue 2: Jurisdiction of order u/s. 154 beyond scope of section 154

The Ld. Pr. CIT's rectification order under section 154 was challenged by the assessee as being beyond the scope of section 154 and lacking jurisdiction. The order revised the issues raised by the first show cause notice but relegated the other two show cause notices to the Assessing Officer. The coordinate bench of ITAT, Kolkata refrained from expressing opinions on the points contained in the other two show cause notices, emphasizing the limited scope of section 154. The Tribunal held that the rectification order was impermissible due to the absence of a foundation after the revisionary order u/s. 263 was quashed, making the exercise of suo motu power invalid.

Issue 3: Limitation under section 263 for passing order u/s. 154

The limitation for passing an order u/s. 263 expired before the impugned order u/s. 154 was issued, as the original assessment order was dated 28.12.2018. The Tribunal found that the impugned order u/s. 154 went beyond the prescribed limitation under section 263(2) of the Act. The Tribunal emphasized that the limitation cannot be extended using section 154 and held that the rectification order, being time-barred, should be quashed. The Tribunal concluded that the original order u/s. 263 had already been quashed on two issues, rendering the rectification under section 154 unnecessary. Consequently, the grounds raised by the assessee were allowed, and the appeal was granted in favor of the assessee.