2022 (12) TMI 435 - AT - Income Tax

Revision u/s 263 - As per CIT error occurred in the rectification order passed by the ld. Assessing Officer u/s 154 - value of the property and unabsorbed depreciation - Debatable issue - HELD THAT - A perusal of the show-cause notice issued by the ld. PCIT under section 263 reveals that ld. PCIT has sought to revise the rectification order passed by the AO u/s 154 in respect of the value of the property and unabsorbed depreciation. The issue relating to the buy-back shares and application of the provisions of section 115QA was not under consideration before AO in the rectification proceedings carried out under section 154 - It is pertinent to mention here that the order can be rectified under section 154 if there is an error apparent on record as occurred in the said order. The assessee vide his application had submitted to AO regarding the applicable rate @ 20% of long-term capital gains and set off of unabsorbed depreciation, whereupon the AO passed the rectification order. AO was not supposed to re-visit the entire assessment order or to re-assess the income in a rectification order passed under section 154 - It was beyond the jurisdiction and scope of the powers of the ld. Assessing Officer under section 154 to make an addition by way of revisiting the entire assessment order and thereby reassess the income of an assessee on a debatable issue. Therefore, it cannot be said that there was any error occurred in the rectification order passed by the ld. Assessing Officer under section 154 of the Income Tax Act. Assessee had also demonstrated during the assessment proceedings that the provisions of section 115QA were not applicable in its case as per the relevant provisions as were in force for the assessment year under consideration. That in the Explanation to Section 115QA(1), as applicable prior to 01.06.2016, buy-back means that purchase by a Company of its own shares in accordance with the provisions of section 77 of the Companies Act. That as per the said provisions in force during the relevant assessment year, the buyback pursuant to the order of the Company Law Board Bench under section 402 of the Companies Act was not included. Therefore, even otherwise, the ld. PCIT was not justified in invoking the provisions of section 263 of the Income Tax Act in this respect. Even otherwise, this issue being a debatable issue, it cannot be said that either the assessment order dated 28.12.2017 or the rectification order passed under section 154 of the Act was erroneous. Therefore, the order passed by the ld. PCIT under section 263 of the Act is not sustainable and the same is hereby quashed. Appeal of the assessee stands allowed.

Summary

Issues:
Revision jurisdiction under section 263 of the Income Tax Act regarding buy-back of shares and applicability of section 115QA.

Analysis:
The appeal challenged the revisionary order by the Principal Commissioner of Income Tax-3, Kolkata, under section 263 of the Income Tax Act, which set aside the assessment order due to alleged errors related to the buy-back of shares. The PCIT cited non-payment of income tax on distributed income from buy-back of shares and failure to credit tax to the Central Government promptly as reasons for revision. The assessee contested the revision order on various grounds, including the jurisdiction of the PCIT to revise the order passed under section 154 and the applicability of section 115QA to their case. The PCIT's notice lacked specific details, and the jurisdiction was questioned. The Departmental Representative supported the PCIT's findings.

The ITAT found merit in the assessee's argument that the PCIT exceeded the revision jurisdiction by revising an order passed under section 154, which did not pertain to the buy-back issue. The PCIT's order dated 10.06.2020 was time-barred as it exceeded the two-year limit from the date of the assessment order. The PCIT sought to revise a rectification order from 2019, which did not address the buy-back issue. The rectification order was limited to specific aspects like property value and unabsorbed depreciation, not the entire assessment. The ITAT emphasized that the rectification order was not meant for reassessment on debatable issues. The assessee had also demonstrated that section 115QA did not apply to their case based on the provisions in force during the relevant assessment year. The ITAT concluded that the assessment and rectification orders were not erroneous, and the PCIT's order under section 263 was unsustainable, thus allowing the appeal.

In summary, the ITAT ruled in favor of the assessee, quashing the PCIT's revisionary order under section 263 of the Income Tax Act, citing jurisdictional limitations and the inapplicability of section 115QA to the case. The ITAT emphasized that the rectification order was not intended for reassessment on debatable issues, and the PCIT's order was beyond the scope of rectification, leading to the appeal's success.