2025 (1) TMI 1480 - AT - Income Tax

Revision u/s 263 beyond period of limitation - disallowance u/s 43B(e) of the Act on account of interest payable to scheduled banks on bank loan - HELD THAT - Case the assessee filed the original return of income on 06.09.2017 the said return was processed and an intimation u/s. 143(1) was issued on 16.10.2018. Thereafter notice u/s. 148 was issued on 17.03.2020 and that re-opened assessment order was passed on 15.04.2021. The issues on which PCIT is seeking to exercise the jurisdiction u/s. 263 of the Act were concluded by virtue of an intimation dated 16.10.2018 issued u/s. 143(1) of the Act which admittedly was done beyond a period of two years prior to the notice dated 14.02.2023 issued u/s. 263 of the Act. As relying on CHAMBAL FERTILISERS 2024 (2) TMI 1381 - RAJASTHAN HIGH COURT also confirmed by SC 2025 (1) TMI 463 - SC ORDER the order of the PCIT was barred by limitation as prescribed under the Act and thereby we considered the ground no. 1 and 2 raised by the assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this legal judgment revolve around the exercise of jurisdiction under Section 263 of the Income Tax Act, 1961, by the Principal Commissioner of Income Tax (PCIT). The key issues include:

- Whether the PCIT erred in invoking Section 263 of the Act, considering the assessment order passed under Section 147 was prejudicial to the interests of the revenue.

- The legality of the PCIT's jurisdiction under Section 263 concerning the assessment order and whether it was erroneous and prejudicial to the revenue.

- The appropriateness of disallowances made by the PCIT under various sections of the Income Tax Act, including Sections 36(1)(va), 43B(e), and 36(1)(iii).

- The validity of the PCIT's decision to consider new issues not part of the original assessment order or the reasons recorded for reopening the assessment.

- The issue of whether the PCIT's order was barred by limitation under Section 263(2) of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction under Section 263

- Legal Framework and Precedents: Section 263 empowers the PCIT to revise an assessment order if it is erroneous and prejudicial to the interests of the revenue. The twin conditions must be satisfied: the order must be erroneous, and it must be prejudicial to the revenue.

- Court's Interpretation and Reasoning: The Tribunal emphasized that the PCIT's jurisdiction under Section 263 is limited to revising orders that are both erroneous and prejudicial to the revenue. The Tribunal referred to precedents, including Malabar Industrial Co. Ltd. v. CIT, which clarified the scope of Section 263.

- Application of Law to Facts: The Tribunal found that the PCIT's invocation of Section 263 was not justified as the issues raised were not part of the original assessment proceedings under Section 147. The PCIT's order was deemed to be beyond the scope of Section 263.

Issue 2: Disallowances under Various Sections

- Sections 36(1)(va), 43B(e), and 36(1)(iii): The PCIT raised issues regarding disallowances related to late payment of PF/ESI contributions, interest payable to banks, and interest on delayed TDS payments.

- Relevant Legal Framework: The Tribunal referred to various judgments, including CIT vs. Manglam Arts and CIT vs. SBBJ, which held that contributions paid before the due date of filing returns could not be disallowed under Section 43B.

- Application of Law to Facts: The Tribunal found that the PCIT's disallowances were not justified as the payments were made before the due date of filing returns, and the issues were settled by binding precedents.

Issue 3: Limitation under Section 263(2)

- Legal Framework: Section 263(2) provides a limitation period for revising an order, which is two years from the end of the financial year in which the order sought to be revised was passed.

- Application of Law to Facts: The Tribunal held that the PCIT's order was barred by limitation as the issues raised were not part of the reassessment proceedings, and the limitation period should be reckoned from the original assessment order.

3. SIGNIFICANT HOLDINGS

- The Tribunal held that the PCIT's invocation of Section 263 was not justified as the issues raised were not part of the original assessment proceedings under Section 147, and the order was barred by limitation.

- The Tribunal emphasized the requirement for the PCIT to demonstrate that the assessment order was erroneous and prejudicial to the revenue, which was not established in this case.

- The Tribunal concluded that the PCIT's order was beyond the scope of Section 263 and quashed the order.

In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the PCIT's order under Section 263, and upheld the original assessment order passed under Section 147. The Tribunal's decision was based on the legal principles established in previous judgments and the specific facts of the case. The Tribunal's judgment underscores the importance of adhering to the statutory limitations and procedural requirements in exercising revisionary powers under the Income Tax Act.