2023 (11) TMI 794 - AT - Income Tax

Revision u/s 263 - taxability of Government grants - As per CIT grants received by the assessee in such year were wrongly taken as capital receipt - HELD THAT - The entire show cause notice that the initiation of revision is premised only on the report submitted by the AO requesting for the revision of the assessment order. During an earlier hearing, the ld. DR was directed to produce the said report of the AO forming part of the show cause notice. DR produced the file in original containing the AO s letter dated 22-03-2018 requesting for the revision of the assessment order and such request having been routed through the range JCIT with his own letter dated 27-03-2018. Pursuant to such letter of the AO, the ld. PCIT issued the above show cause notice on 29-05-2018. It is apparent that the entire foundation of the revision is based on the AO requesting the ld. PCIT to revise the assessment order. Both the conditions, namely, the CIT calling for and examining the record and then considering the assessment order passed by the AO to be erroneous and prejudicial to the interest of the Revenue are to be cumulatively satisfied by the CIT alone. The use of the word and between the two expressions amply demonstrates that the calling for and examining the record by the CIT should precede and his such examination should culminate in getting satisfied that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue . If one of these conditions gets negated, that is, either he does not call for and examine the record or such examination does not lead him to satisfying the assessment order erroneous etc., the jurisdiction u/s. 263 is not activated. Revision u/s. 263 is concerned, it is the sole prerogative of the Pr. CIT, who needs to take suo motu action on calling for and examining the record of any proceedings under this Act and on the basis of such examination considering the assessment order erroneous and prejudicial to the interest of the Revenue. It is evident from the show cause notice that the ld. PCIT initiated revisionary proceedings just on the basis of the AO s report without carrying out any independent examination of the record followed by independently satisfying himself that the assessment order required revision. Thus we are satisfied that the ld. PCIT exercised his jurisdiction to initiate the revision proceedings in a wrongful manner, which, ergo, cannot be accorded our imprimatur. Assessee created the bedrock for challenging the revision through the additional ground, on the basis of the show cause notice issued by the ld. PCIT, which is part of the assessee s paper book. Our decision of quashing the revision on this legal issue is based on such show cause notice - The additional ground raises a pure question of law, for which no fresh investigation of facts is required. That is raison d etre for our admitting the additional ground and then espousing it for consideration. It is, therefore, ultimately held that the ld. Pr. CIT was not justified in invoking the revision jurisdiction. Decided in favour of asses

Summary

Issues Involved:
1. Legality of invoking revision jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Taxability of Government grants as capital or revenue receipts.

Summary:

Issue 1: Legality of invoking revision jurisdiction under Section 263 of the Income-tax Act, 1961

The assessee filed appeals against the common order passed by the Principal Commissioner of Income-tax (PCIT) under Section 263 for the assessment years 2012-13 and 2013-14. The PCIT issued a show cause notice based on the assessment proceedings for A.Y. 2014-15, observing that the assessee had received Government grants which were taxable but taken as capital receipts. The PCIT directed the AO to frame the assessment afresh after conducting enquiries and verification. The Tribunal noted that the PCIT's initiation of revision was premised solely on the report submitted by the AO requesting for the revision of the assessment order. The Tribunal emphasized that Section 263(1) mandates the Commissioner to call for and examine the record of any proceeding and then consider if the order is erroneous and prejudicial to the interests of the revenue. The Tribunal found that the PCIT did not independently call for and examine the records but acted solely on the AO's report. Citing the judgments in Smt. Sumitra Devi Khirwal Vs. CIT and CIT Vs. Bhagat Shyam & Co., the Tribunal highlighted that the satisfaction of the CIT is paramount and must be based on an independent examination of the records. The Tribunal concluded that the PCIT exercised his jurisdiction to initiate the revision proceedings in a wrongful manner.

Issue 2: Taxability of Government grants as capital or revenue receipts

The assessee contended that the Government grants were capital receipts not chargeable to tax, citing the SC decision in the case of PJ Chemicals. However, the PCIT found the contention unacceptable, referring to the SC decision in Sahney Steel & Press Works Limited Vs. CIT, which held that incentives received year after year after the commencement of production are to be treated as revenue receipts. The Tribunal did not delve into the merits of the issue, as it quashed the revision proceedings on the legal ground of wrongful exercise of jurisdiction by the PCIT.

Conclusion:

In view of the wrongful exercise of jurisdiction by the PCIT, the Tribunal set aside the impugned order passed under Section 263 for both assessment years. Consequently, the appeals were allowed.

Order pronounced in the Open Court on 19th October, 2023.