2023 (3) TMI 1230 - AT - Income Tax

Revision u/s 263 - As per CIT transaction relating to capital gains in the scrip of M/s Tuni Textiles Ltd. not considered by AO - period of limitation - validity of reopening of assessment - AO did not examine it during the original assessment proceedings u/s 143(3) of the Act and further that the same was not subject matter of investigation under the reassessment proceedings u/s 147 - HELD THAT - Reassessment order of the AO cannot be held to be erroneous on the ground that the AO did not examine the other income relating to the capital gains in the scrip of M/s Tuni Textiles Ltd. when the AO did not make any addition in respect of reason/subject-matter for which the reopening was done in the case of the assessee. The audit party has no right to interfere in the quasi-judicial proceedings to make an objection as to in what mode or manner, the AO should pass an assessment order and what examination ought to be carried out by him in the assessment proceedings. Moreover, the original assessment proceedings u/s 143(3) stood completed on 26.02.2014 itself. Even the transaction relating to shares of M/s Tuni Textiles Ltd. was not the subject-matter of the reassessment proceedings. Therefore, the revision order passed by the PCIT u/s 263 is otherwise time-barred. Even When in the reassessment proceedings, no addition has been made by the Assessing Officer in respect of the subject-matter/item of income for which the AO had formed reasons to believe of escapement of income and finally found that the income of the assessee has not escaped income in respect of that issue/item. As in view of the decisions of Jet Airways Ltd. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY it was not open to the AO to make addition in respect of other item of income. When the reassessment was made to examine a particular investment and the assessee duly explained the source of the said investment and the AO has accepted the said source then the order of the AO cannot be said to be erroneous and exercise of revision jurisdiction u/s 263 of the Act in respect of said order, cannot be held to be justified. Decided in favour of assessee.

Summary

Issues involved:
The appeal against the order of the Principal Commissioner of Income Tax -1, Kolkata under section 263 of the Income Tax Act.

Issue 1: Validity of invoking Section 263
The assessee challenged the invocation of Section 263 by the PCIT, arguing that the original assessment completed under section 143(3)/147 was not erroneous or prejudicial to the revenue's interest. The reassessment was reopened for specific reasons, and the assessee contended that the provisions of Section 263 were not applicable. Additionally, the assessee claimed that the original assessment proceedings were flawed as they were reopened without meeting the requirements of Section 147.

Issue 2: Lack of Enquiry by Assessing Officer
The assessee further contended that the Assessing Officer did not lack in making necessary enquiries during the assessment process, and therefore, the invocation of Section 263 was unwarranted.

Issue 3: Examination of Capital Gains
The PCIT held that the original assessment did not examine the capital gains from the sale of shares of M/s Tuni Textiles Ltd., which were not part of the reassessment proceedings. The PCIT deemed the original order as erroneous and prejudicial to the revenue's interest due to the failure to scrutinize this aspect.

Judgment Summary:
The Appellate Tribunal, after considering the arguments, found in favor of the assessee. The Tribunal noted that the reassessment order was itself flawed as it was initiated after four years from the relevant assessment year without any failure on the assessee's part to disclose material facts. The Tribunal cited a Bombay High Court decision to support the stance that if income originally believed to have escaped assessment was later found not to have done so, the Assessing Officer could not independently assess other incomes. The Tribunal also highlighted that the PCIT's revision was based on a revenue audit objection, which was not a valid ground for revision. Moreover, the PCIT's order was deemed time-barred as the original assessment was completed long before the revision was initiated. The Tribunal referenced a Supreme Court decision to emphasize that the period of limitation for revision starts from the date of the original assessment. Ultimately, the Tribunal concluded that the PCIT's order was not sustainable in law and quashed it, thereby allowing the appeal of the assessee.

This judgment showcases the importance of adherence to procedural requirements and the necessity for thorough examination during assessment proceedings to avoid unwarranted revisions under Section 263 of the Income Tax Act.