2022 (9) TMI 1188 - AT - Income Tax

Revision u/s 263 by CIT - Scope of the instructions issued by the CBDT - Exercise of power us/ 119 - additions had been made under the head undisclosed investment in silver stock , undisclosed investment in stock , undisclosed sale and disallowance u/s.69A - As submitted AO has followed the appraisal report issued by the Investigation Wing - HELD THAT - Revenue has not been able to show as to which portion of the appraisal report, the Assessing officer has not complied with. Mere allegation that the AO has not followed the appraisal report would not hold water. Coming to the clause (c) of the Explanation 2 to Section 263, the order or direction or instruction, which is referred therein, are those issued by the CBDT u/s.119. A perusal of the said instruction shows that this is practically a search and seizure manual notification. It is an internal communication being guidelines for the notice of the Commissioner of Income tax, Range Head and the AO handling the assessment of search and seizure cases. This notification is not one which has been issued u/s.119 of the Income tax Act, 1961 Normally, when the Board issues any specific direction u/s.119, it is mentioned that such a direction of circular/order or notification is issued u/s.119. Thus, on this ground itself, the order passed u/s.263 is liable to annulled and we do so. Assessment order passed u/s.143(3) for the impugned assessment year has been subject matter of appeal before the ld CIT(A - In the order of the ld CIT(A), the issue of the stock valuation has already been considered. The ld CIT(A) has also taken cognizance of the fact that pages 2 to 37 of the assessment order is nothing but extract of the appraisal report. This being so, in view of the provisions of Explanation -1 (c) of Section 263 (1), as the order passed by the AO had been the subject matter of appeal filed after the 1st day of June, 1988, the powers of the Pr. CIT u/s.263(1) could extend only to such matters as had not been considered and decided in the appellate order. Both the issues proposed by the pr. CIT was subject matter and has been under the consideration of the ld CIT(A) and the Pr. CIT has also recognized that the ld CIT(A) has adjudicated the appeal and he has also passed his order on 14.10.2019 much before the show cause notice has been issued by the Pr. CIT. Thus, on this ground also, the order passed u/s.263 is unsustainable and same stands quashed. Appeal of assessee allowed.

Summary

Issues:
Appeal against order u/s.263 of the IT Act for AY 2016-17, Condonation of delay in filing appeal, Assessment based on search and seizure operation, Additions made under various heads, Compliance with CBDT Instruction, Invocation of Explanation 2 to Section 263, Compliance with appraisal report, Consideration of issues by AO and CIT(A), Powers of Pr. CIT u/s.263(1) post appellate order.

Analysis:
The appeal was filed against the order of the ld Pr. CIT, Hyderabad under Section 263 of the IT Act for the assessment year 2016-17. The appeal was initially time-barred by 196 days, but the delay was condoned due to reasons related to the COVID-19 pandemic and unintentional delay in filing. The assessee, a jeweler, was involved in manufacturing and trading in jewelry and stones, and the assessment was based on a search and seizure operation conducted in 2015. The additions were made under various heads, leading to a revised loss amount. The Revenue filed an appeal against the CIT(A)'s order, prompting the Pr. CIT to issue a show cause notice under Section 263, citing discrepancies between admitted income and estimates by the Investigation Wing. The Pr. CIT set aside the assessment order, directing a reassessment considering closing stock and following CBDT Instruction.

The arguments presented by the parties revolved around the compliance with the appraisal report, with the assessee contending that the AO followed the report, and the CIT DR asserting otherwise. The Tribunal analyzed the assessment order and found that the AO had indeed incorporated the appraisal report in the assessment. The Tribunal also examined the CBDT Instruction referred to by the Pr. CIT under Section 263, highlighting that it was an internal communication guideline for search and seizure cases, not issued under Section 119 of the IT Act. Consequently, the Tribunal held that the order under Section 263 was unsustainable and annulled it.

Moreover, the Tribunal observed that the issues raised by the Pr. CIT had already been considered and decided by the CIT(A) in his order before the show cause notice was issued. As per Section 263(1), the powers of the Pr. CIT could only extend to matters not considered in the appellate order. Since both issues were subject to CIT(A)'s consideration and decision, the order under Section 263 was deemed unsustainable and quashed. Therefore, the Tribunal allowed the appeal of the assessee, emphasizing the importance of prior consideration of issues by the appellate authority in limiting the scope of revisionary powers under Section 263.