2024 (8) TMI 334 - AT - Income Tax

Validity of revision u/s 263 - main reason written by the ld. PCIT in his revision order was that though the case of the assessee was converted from limited scrutiny to full scrutiny, however, the Assessing Officer failed to examine these issues - HELD THAT - We note that neither the ld. PCIT has mentioned in the order about any document, whereby, the limited scrutiny was converted into full scrutiny, nor the ld. DR could produce on file any such document or approval for converting the limited scrutiny into full scrutiny in the case of the assessee. Therefore, under the circumstances, the impugned order passed by the ld. PCIT u/s 263 of the Act was bad in law and accordingly consequential proceedings were also bad in law. Assessee has not filed appeal against the section 263 order itself but has challenged the validity of the same in the consequential proceedings/order passed pursuant to the said order passed u/s 263 of the Act - As decided in case of Valiant Glass Works Pvt. Ltd 2016 (7) TMI 1418 - ITAT MUMBAI jurisdiction or the legality of the proceedings can be agitated in a subsequent proceedings or even in a collateral proceedings or an execution proceedings also. If, the original order is illegal or without jurisdiction, the subsequent or collateral proceedings arisen out of such orders or proceedings, cannot be held to be valid. Since the exercise of revision jurisdiction in this case by the ld. PCIT was wrong and illegal, therefore, the consequential order passed u/s 143(3) of the Act was also not sustainable in the eyes of law and the same is accordingly quashed. Appeal of the assessee stands allowed

Summary

Issues Involved:
1. Jurisdictional validity of the assessment order dated 31.12.2018.
2. Examination of cash deposits and sundry creditors.
3. Procedural compliance for converting limited scrutiny to full scrutiny.
4. Validity of the revision order under Section 263 of the Income Tax Act.
5. Legal precedents regarding jurisdictional defects.

Issue-wise Detailed Analysis:

1. Jurisdictional Validity of the Assessment Order Dated 31.12.2018:
The assessee contended that the assessment order dated 31.12.2018 was void ab initio and lacked jurisdiction because the original assessment order dated 30.12.2016 was itself void. The Tribunal found that the original assessment was accepted without any additions, and the subsequent assessment order was based on the revision order under Section 263, which was challenged for being erroneous.

2. Examination of Cash Deposits and Sundry Creditors:
The Principal Commissioner of Income Tax (PCIT) observed that the Assessing Officer (AO) failed to examine several issues, including cash deposits of Rs. 92,65,000 in ICICI Bank and Rs. 37,85,000 in HDFC Bank, and sundry creditors amounting to Rs. 1,67,79,246. The AO included Rs. 99,78,000 as unexplained cash credits and Rs. 47,70,140 as unexplained sundry creditors in the assessee's total income, which the CIT(A) confirmed.

3. Procedural Compliance for Converting Limited Scrutiny to Full Scrutiny:
The Tribunal noted that the case was initially selected for limited scrutiny related to share transactions. There was no mention or documentation indicating that the limited scrutiny was converted to full scrutiny. The Tribunal emphasized that the procedure outlined in CBDT Instruction No. 20/2015, requiring approval from the PCIT/CIT for such conversion, was not followed.

4. Validity of the Revision Order Under Section 263 of the Income Tax Act:
The Tribunal found that the PCIT's revision order dated 15.01.2018, which directed a de novo assessment, was based on the erroneous assumption that the limited scrutiny was converted to full scrutiny. Since no such conversion occurred, the revision order was deemed unsustainable and invalid.

5. Legal Precedents Regarding Jurisdictional Defects:
The Tribunal referenced several legal precedents to support the assessee's position:
- Keshab Narayan Banerjee vs. Commissioner of Income Tax: The High Court held that an order under Section 147 without proper notice was invalid, making subsequent proceedings under Section 263 also invalid.
- Kiran Singh vs. Ors. vs. Chaman Paswan & Ors.: The Supreme Court ruled that a decree passed without jurisdiction is a nullity and can be challenged at any stage.
- M/s Westlife Development Ltd. vs. Principal CIT: The Tribunal held that a revision of a non-est order is null and void.
- Valiant Glass Works Pvt. Ltd. vs. ACIT: The Tribunal reiterated that jurisdictional defects render subsequent proceedings invalid.

Conclusion:
The Tribunal concluded that the PCIT's exercise of revision jurisdiction was illegal, rendering the consequential assessment order under Section 143(3) unsustainable. The appeal of the assessee was allowed, and the assessment order dated 31.12.2018 was quashed.