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2025 (2) TMI 309 - HC - Income TaxRevision u/s 263 - as per CIT Assessment Order was passed without making inquiries or verification which would have been made in respect of disallowance u/s 14A read with Rule 8D of the Rules as prescribed - HELD THAT - It is not in dispute that during the course of the regular assessment carried out under Section 143 (3) of the Act the queries were raised with regard to the issue of disallowance under Section 140 of the Act with Rule 8D of the Rules and the petitioner was called upon to furnish the details of expenses claimed in respect of any exempt income working of disallowance under Section 14A of the Act and the petitioner has furnished such information in the reply filed during the course of the assessment proceeding. Therefore it appears that during the course of the regular assessment the Assessing Officer has accepted the explanation and reply filed by the petitioner and the return income was accepted. AO was not required to record any reason for not making any disallowance u/s 14A of the Act while passing the Assessment Order. The impugned show-cause notices and impugned orders cannot be sustained. The petitions therefore succeed and are accordingly allowed.
Issues Presented and Considered
The core legal issues considered in this judgment revolve around the jurisdiction of the Principal Commissioner of Income Tax (respondent no. 1) to invoke Section 263 of the Income Tax Act, 1961, to revise the assessment orders for the Assessment Years 2012-13 and 2014-15. The specific issues include:
Issue-Wise Detailed Analysis Relevant Legal Framework and Precedents The legal framework centers around Section 263 of the Income Tax Act, which allows the Principal Commissioner to revise an assessment order if it is erroneous and prejudicial to the interests of the revenue. The doctrine of merger and the limitation period under Section 263(2) are also pertinent. Key precedents include the Supreme Court's decision in Alagendran Finance Limited and the Gujarat High Court's decision in Nirma Chemicals Works Pvt. Ltd. Court's Interpretation and Reasoning The Court interpreted that the Principal Commissioner could not assume jurisdiction under Section 263 if the Assessing Officer had already conducted inquiries on the disallowance under Section 14A during the regular assessment. The Court emphasized that the doctrine of merger applied because the assessment orders were appealed before the CIT (Appeals), and the reassessment orders had already merged into the CIT (Appeals) orders. Key Evidence and Findings The evidence included the original assessment orders, reassessment orders, and the show-cause notices issued under Section 263. The Court found that the Assessing Officer had indeed made inquiries regarding the disallowance under Section 14A during the regular assessment proceedings, which were accepted without any disallowance. Application of Law to Facts The Court applied the law by determining that the inquiries made by the Assessing Officer during the regular assessment sufficed, and thus, the Principal Commissioner could not invoke Section 263 to revise the orders based on a change of opinion. Furthermore, the limitation period for invoking Section 263 should run from the date of the original assessment order, not the reassessment order, as the issues raised were not part of the reassessment proceedings. Treatment of Competing Arguments The Court considered the respondent's argument that the Assessing Officer failed to make proper inquiries during the reassessment. However, it was concluded that the inquiries during the regular assessment were adequate, and revisiting the same issue would constitute a change of opinion, which is not permissible under Section 263. Conclusions The Court concluded that the Principal Commissioner lacked jurisdiction to issue the show-cause notices and pass the orders under Section 263, as the conditions for invoking this section were not met. Significant Holdings The Court held that:
In verbatim, the Court stated: "The impugned show-cause notices and impugned orders cannot be sustained. The petitions therefore succeed and are accordingly allowed. The impugned notices and impugned orders are hereby quashed and set-aside." The Court established that revisional jurisdiction under Section 263 could not be exercised merely due to a change of opinion or inadequate inquiry by the Assessing Officer when the issue had already been addressed during the regular assessment proceedings.
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