2022 (10) TMI 84 - HC - Income Tax

Revision u/s 263 - failure to give any opportunity of hearing to the assessee - HELD THAT - Though the assessee submitted explanation in response to the proceeding initiated u/s 263 PCIT without affording an opportunity of hearing to the assessee on the alleged ground that no enquiry was conducted by the assessing officer had rejected the contentions and confirmed the proposal in the show cause notice holding that the assessment order was erroneous in so far as it is prejudicial to the interest of revenue. Tribunal considered the contentions advanced by the assessee before it and pointed out that the PCIT did not specifically mention any error in the contentions advanced by the assessee in reply to the show cause notice and held that the assessment order was erroneous in so far as it is prejudicial to the interest of revenue solely on the ground that the assessing officer failed to verify necessary facts. There was no such allegations made in the show cause notice u/s 263 and, therefore, no opportunity was afforded on the said issue. Thus, the learned Tribunal taking note of the decision in the case of CIT vs. Amitabh Bachchan 2016 (5) TMI 493 - SUPREME COURT held that failure to give any opportunity would render the revisional order under Section 263 of the Act legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. Tribunal rightly went into the matter and held in favour of the assessee. Furthermore, we note that in terms of Section 263 of the Act, the PCIT is empowered to invoke the power if, in his opinion, the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. However, before doing so he is required to give the assessee an opportunity of being heard and after making enquiry or causing to be made such enquiry as he deems necessary, pass an order under the said provision. The learned Tribunal has found that opportunity was not granted to the assessee. That apart no enquiry was conducted by the PCIT before passing the order. - Decided against revenue.

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1961.
2. Validity of the order passed by the Principal Commissioner of Income Tax-III, Kolkata.
3. Application of principles of natural justice in revisional orders under Section 263.

Analysis:
1. The primary issue in this case was the interpretation of Section 263 of the Income Tax Act, 1961. The Tribunal had to determine whether the Principal Commissioner of Income Tax-III, Kolkata, was justified in setting aside the assessment order under this section. The assessee argued that the PCIT erred in reviewing the assessment order based on lack of inquiry regarding the allowability of prior period expenses, which was not a ground raised initially. The Tribunal considered multiple grounds raised by the assessee, including the procedure followed under Section 263 and the adequacy of the opportunity given to the assessee to present their case.

2. The validity of the order passed by the PCIT was also a crucial aspect of this judgment. The assessee contended that the liability for prior period expenses had crystallized during the relevant year, and no prejudice was caused to the revenue by allowing the deduction. The Tribunal examined the detailed process of coal supply and payment between the assessee and Coal India Limited to establish the legitimacy of the deduction claimed. It was highlighted that the PCIT did not specify any error in the assessee's contentions and rejected them without proper verification, leading to the conclusion that the assessment order was erroneous.

3. The application of principles of natural justice in revisional orders under Section 263 was another significant point addressed in this judgment. The Tribunal emphasized that the PCIT failed to provide the assessee with a hearing opportunity on the alleged lack of inquiry by the assessing officer. Citing a Supreme Court decision, the Tribunal ruled that the failure to grant such an opportunity rendered the revisional order legally fragile due to a violation of natural justice principles. Consequently, the Tribunal upheld the assessee's position, emphasizing the importance of affording the taxpayer a fair chance to present their case and respond to any allegations before revising an assessment order.

In conclusion, the High Court of Calcutta dismissed the revenue's appeal, affirming the Tribunal's decision in favor of the assessee. The judgment underscored the significance of following due process, conducting necessary inquiries, and upholding principles of natural justice in revisional orders under Section 263 of the Income Tax Act, 1961.