2024 (9) TMI 210 - AT - Income Tax

Revision u/s 263 - Validity of assessment orders passed under section 153A with prior approval u/s 153D - Addition u/s 40A(3) regarding payments exceeding specified limits - HELD THAT - We find that in the impugned order the ld. PCIT has not taken account of the fact that the assessments were completed after prior approval of the competent authority. Thus we are of the considered view that at the time of examining the issue as to if the assessment order is erroneous so far as prejudicial to the interest of the Revenue the ld. revisional authority is not only supposed to see the assessment record of AO but also the record of the approval which as far as the revisional authority is concerned becomes record of the quasi judicial authority whose order is being examined by invoking the revisional jurisdiction. Therefore without giving a finding that the prior approval u/s 153D was vitiated and was also erroneous so far as prejudicial to the interest of the Revenue the assessment order independently cannot be held to be erroneous so far as prejudicial to the interest of the Revenue. Thus order passed by the PCIT is unsustainable due to lack of jurisdiction in invoking section 263 of the Act for the reason that the same was passed upon taking prior approval u/s 153A of the Act was not challenged by the Department before the Hon ble High Court or the Hon ble Supreme Court. Assessee appeal allowed.

Summary

Issues:
1. Jurisdiction of PCIT under section 263 of the Income Tax Act.
2. Validity of assessment orders passed under section 153A with prior approval under section 153D.
3. Compliance with section 40A(3) regarding payments exceeding specified limits.

Detailed Analysis:

1. The appeals were filed by the assessee against the orders passed by the Principal Commissioner of Income Tax (Central) under section 263 of the Income Tax Act, challenging the assessments completed under section 153A. The PCIT invoked revisional jurisdiction due to discrepancies in certain payments made by the assessee's proprietary concern, leading to a direction to the Assessing Officer to disallow the amounts. The grounds of appeal were similar across the four assessment years, and the appeals were heard together for convenience.

2. The counsel for the assessee argued that for the assessment years 2015-16 and 2016-17, which were unabated assessments, the PCIT's order under section 263 was not sustainable as the AO could not have examined the issue under section 40A(3) in assessments under section 153A. The Tribunal agreed that the AO's actions under section 153A could not be rectified under section 263.

3. The assessee contended that the assessment orders for all four years were passed under section 153A with prior approval under section 153D, making them immune to revision under section 263. The AR relied on various judicial pronouncements to support this argument. The DR, however, cited a different Tribunal order to counter this argument.

4. The Tribunal examined the issue and noted that the assessment orders had statutory approval under section 153D. It emphasized that the revisional authority must consider both the AO's assessment record and the approval record under section 153D. Without finding any fault in the approval process, the assessment order could not be deemed erroneous under section 263.

5. Referring to judicial precedents, the Tribunal highlighted that once prior approval was obtained under section 153D, the same authority could not exercise revisional powers under section 263. It cited a specific judgment of the Madras High Court to support this position, emphasizing the importance of prior approval in preventing revision under section 263.

6. The Tribunal differentiated the case cited by the DR, emphasizing that the issue of prior approval was not addressed in that case. Ultimately, the Tribunal allowed the grounds raised by the assessee for the relevant assessment years, quashing the impugned orders under section 263.

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the significance of prior approval under section 153D in shielding assessment orders from revision under section 263. The judgment highlighted the need for the revisional authority to consider the entire assessment process, including prior approvals, before deeming an assessment order as erroneous.