2022 (7) TMI 75 - AT - Income Tax

Revision u/s 263 - reopening of assessment concluded against assessee - period of limitation - HELD THAT - The principal Commissioner of income tax has been bestowed upon with a power under section 263 of the Act that he may call for and examine the records of any proceedings under this act. On such examination, if he considers that any 'order' passed in those proceedings by the AO is erroneous in so far as it is prejudicial to the interest of the revenue, he may revise such order as the circumstances of the case justify. He may enhance, modify or cancel the assessment order and may also direct the AO to cause examination of the details and further pass an order. But he can do so only after granting assessee an opportunity of hearing. However according to the provisions of sub-section (2), such order could be passed only within the period of two years from the end of the financial year in which the order sought to be revised was passed. Similar issue in case of R K Steel Syndicate 2007 (4) TMI 397 - ITAT MUMBAI considered that in case no additions are considered necessary by the assessing officer on the issues on which reassessment proceedings are resorted to, it cannot be open to him to make any other additions also. Therefore by allowing PCIT extended time limit of 2 years will amount to allow revenue to do something indirectly which act prohibits directly. Thus the order under Section 263 of the Act dated 23rd March, 2021 is held barred by limitation and hence, quashed. - Appeal of assessee allowed.

Summary

Issues Involved:
1. Validity of the Principal Commissioner of Income Tax (PCIT) assuming jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Whether the order passed under Section 263 was barred by limitation.

Issue-wise Detailed Analysis:

1. Validity of the Principal Commissioner of Income Tax (PCIT) assuming jurisdiction under Section 263:
The appeal was filed by the assessee against the order passed by the PCIT under Section 263 of the Income Tax Act, 1961, which held that the order passed by the Assessing Officer (AO) under Section 147 read with Section 143(3) was erroneous and prejudicial to the interest of the revenue. The PCIT found that the AO had failed to disallow depreciation on a building that was on rent and had not invoked disallowance under Section 14A for the share of profit received from another firm. The PCIT thus set aside the assessment order with directions to re-examine these issues.

2. Whether the order passed under Section 263 was barred by limitation:
The assessee argued that the order under Section 263 was barred by limitation, as the time limit should be computed from the original assessment order passed under Section 143(3) on 28th February 2014, rather than the reassessment order dated 25th September 2018, which merely dropped the proceedings initiated under Section 147. The assessee cited the case of R.K. Steel Syndicate Vs. Income Tax Officer, where it was held that the time limit for the Commissioner's power under Section 263 must be computed with reference to the original assessment order if the reassessment order only dropped the proceedings.

The Tribunal carefully considered the rival contentions and noted that the original assessment was completed on 28th February 2014. The reassessment order dated 25th September 2018 dropped the proceedings initiated under Section 147. The Tribunal referred to the decision in the case of R.K. Steel Syndicate, which established that if no additions are made in the reassessment proceedings, the time limit for the Commissioner's power under Section 263 should be computed from the original assessment order. The Tribunal concluded that the order dated 25th September 2018 was essentially an order dropping the reassessment proceedings and not a reassessment order per se. Therefore, the time limit for passing an order under Section 263 should be computed from the original assessment order dated 28th February 2014.

The Tribunal held that the order passed by the PCIT under Section 263 on 23rd March 2021 was barred by limitation and quashed it. Consequently, the appeal filed by the assessee was allowed.

Conclusion:
The Tribunal concluded that the PCIT's order under Section 263 was invalid as it was barred by the period of limitation. The appeal filed by the assessee was allowed, and the order under Section 263 was quashed. The decision was pronounced in the open court on 21st June 2022.