2024 (7) TMI 402 - AT - Income Tax

Revision u/s 263 - AO had not made any addition with respect to the cash deposits made in the bank account and unsecured loan received of the assessee company during the year under consideration, i.e. the issue, based on which, its case was reopened by him u/s. 147 - HELD THAT - When the A.O had not made any addition with respect to the cash deposits made in the bank account of the assessee company during the year under consideration, i.e. the issue, based on which, its case was reopened by him u/s. 147 of the Act, and thus, was divested of his jurisdiction from making any further independent addition /disallowance, therefore, the Pr. CIT could not have held the re-assessment order so passed by him as erroneous for the reason that he had failed to carry out verification on such independent issues. It is only in a case where the issues before the Commissioner at the time of exercising powers under Section 263 of the Act relate to the subject matter of re-assessment, the same would bring the order of reassessment within the realm of the jurisdiction of the Commissioner u/s. 263 of the Act. Also, the period of limitation for exercising jurisdiction u/s. 263 of the Act would start from the date of the re-assessment order. However, if the subject matter of the re-assessment is distinct and different, as in the present case before us, then in that case the relevant date for the purpose of determination of period of limitation for exercising powers under Section 263 of the Act would be the date of the original assessment order. We, thus, are of the view that the Pr. CIT had exceeded the jurisdiction vested with him u/s. 263 of the Act with respect to the aforesaid two issues, viz. (i) sum received by the assessee company as share capital/premium AND (ii) sum received by the assessee company as unsecured loans from three persons, as the same did not form the subject matter of the reassessment order passed the A.O u/s. 147 r.w.s. 143(3). Accordingly, the revision of the order passed by the A.O u/s. 147 r.w.s. 143(3) by the Pr. CIT u/s. 263 of the Act being not as per the mandate of law cannot be sustained and is liable to be struck down. Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of Principal CIT under Section 263.
2. Validity of reassessment under Section 147.
3. Verification of share capital/premium and unsecured loans.
4. Applicability of judicial precedents on reassessment and revision.

Issue-wise Detailed Analysis:

1. Jurisdiction of Principal CIT under Section 263:
The Principal CIT invoked Section 263, questioning the AO's reassessment order under Section 147 read with Section 143(3). The Principal CIT argued that the AO failed to verify two issues: the share capital/premium of Rs. 2,74,50,810/- and unsecured loans of Rs. 1,88,56,508/-. The Tribunal concluded that the Principal CIT exceeded his jurisdiction as these issues were not part of the reassessment's original scope. The Tribunal emphasized that the Principal CIT could only revise the original assessment order under Section 143(3) dated 29.08.2016, not the reassessment order under Section 147.

2. Validity of Reassessment under Section 147:
The AO reopened the assessment under Section 147 based on unexplained cash deposits of Rs. 36,59,500/-. However, during reassessment, the AO accepted the assessee's explanation and made no additions. The Tribunal cited judicial precedents, including CIT-5, Mumbai Vs. Jet Airways (I) Ltd. and ACIT vs Major Deepak Mehta, to assert that once the AO accepts the explanation for the reason to believe, he cannot make independent additions unrelated to the original issue.

3. Verification of Share Capital/Premium and Unsecured Loans:
The Tribunal noted that the AO did not have the jurisdiction to verify the share capital/premium and unsecured loans during reassessment because these issues were not part of the original reason for reopening the assessment. The Tribunal referenced the Supreme Court's ruling in CIT Vs. Alagendran Finance Ltd., which clarified that the revisional jurisdiction under Section 263 is limited to the issues forming the subject matter of the reassessment.

4. Applicability of Judicial Precedents on Reassessment and Revision:
The Tribunal relied on several judicial precedents to support its decision:
- CIT-5, Mumbai Vs. Jet Airways (I) Ltd. and ACIT vs Major Deepak Mehta: These cases established that the AO cannot proceed with independent additions if the original reason for reopening the assessment is resolved without any additions.
- CIT Vs. Alagendran Finance Ltd.: This case clarified that the Principal CIT's revisional jurisdiction under Section 263 is limited to issues forming the subject matter of the reassessment.
- Sun Engineering Works (P) Ltd.: This case emphasized that reassessment proceedings are confined to the income that escaped assessment and do not reopen the entire assessment.

Conclusion:
The Tribunal concluded that the Principal CIT exceeded his jurisdiction under Section 263 by revising the reassessment order for issues not forming the subject matter of the reassessment. The Tribunal allowed the assessee's appeal, setting aside the Principal CIT's order. The judgment underscores the importance of adhering to the specific scope of reassessment and the limitations of revisional jurisdiction under Section 263.