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2024 (7) TMI 900 - AT - Income TaxRevision u/s 263 - original order was subjected by the AO to rectification u/s. 154 - HELD THAT - A perusal of the order passed u/s. 263 of the Act by the ld. CIT(E) for the impugned assessment year with that of the assessment year 2017-2018 which is already quashed by the coordinate bench of the Tribunal, shows that for the impugned assessment year the ld. CIT(E) has extracted the various submissions of the assessee. Nowhere in the order the ld. CIT(A) is able to point out any error in the submissions made by the assessee. What the nature of the shortfall in the examination as done by the AO in the course of original assessment, is also not coming out of the order of the ld. CIT(E). The fact that the ld. CIT(E) has taken a stand in his order that correct enquiry was not carried out while allowing the claim of application of the income, shows that the ld. CIT(E) was well aware that examination had been done by the AO. The order of the ld. CIT(E) also does not speak of the correct enquiries that he wants to be done by the AO. Thus, clearly shows that this is nothing but an attempt of the ld.CIT(E) to dislodge an opinion as arrived at by the AO without pointing out any error in such opinion arrived. CIT(E) has invoked his powers u/s. 263 of the Act on the assessment order passed u/s. 143(3) r.w.s. 144B of the Act, the same has already been rectified vide an order dated 29.07.2021 u/s. 154 r.w.s. 143(3) of the Act, thus, the order passed u/s. 263 of the Act is unsustainable and on this ground also the order passed by the ld. CIT(E) u/s. 263 of the Act stands quashed.
Issues Involved:
1. Jurisdiction of the Commissioner under Section 263 of the Income Tax Act. 2. Validity of the revisionary order passed by the Commissioner of Income Tax (Exemption) [CIT(E)]. 3. Examination of the development fee as part of the revenue. 4. Adequacy of enquiry conducted by the Assessing Officer (AO). Issue-Wise Detailed Analysis: 1. Jurisdiction of the Commissioner under Section 263 of the Income Tax Act: The primary issue was whether the CIT(E) had the jurisdiction to revise the assessment order under Section 263 of the Income Tax Act after it had been rectified under Section 154. The assessee argued that once the original order had been rectified, it lost its identity to the extent of the rectification, citing the decision of the Hon’ble Madhya Pradesh High Court in CIT Vs. Kalyan Solvent Extraction Ltd. The Tribunal agreed, noting that the CIT(E) could only revise the rectified order and not the original assessment order. 2. Validity of the Revisionary Order Passed by CIT(E): The Tribunal examined whether the CIT(E) had valid grounds to invoke Section 263. The CIT(E) argued that the assessment order was erroneous and prejudicial to the revenue's interest. However, the Tribunal found that the CIT(E) did not conduct any further enquiry or provide evidence to substantiate his claims. The Tribunal noted that the CIT(E) merely stated the order was erroneous without demonstrating how the AO's conclusions were incorrect or not in accordance with the law. 3. Examination of the Development Fee as Part of the Revenue: The CIT(E) contended that the development fee collected by the assessee should have been routed through the income and expenditure account and treated as revenue income. The assessee provided a detailed explanation and calculation showing that even if the development fee was treated as revenue, the net result would still be a loss after considering the capital expenditure. The Tribunal found that the CIT(E) did not account for the capital expenditure in his calculations, which led to an incorrect assessment of taxable income. 4. Adequacy of Enquiry Conducted by the AO: The Tribunal scrutinized whether the AO had conducted an adequate enquiry during the original assessment. It was noted that the assessment was done under the faceless scheme, and the AO had raised queries regarding the development fees which were fully responded to by the assessee. The Tribunal found that the AO had indeed conducted a thorough enquiry, and the compliance report generated by the system indicated full compliance by the assessee. The Tribunal concluded that there was no lack of enquiry or inadequate enquiry by the AO, and the CIT(E) had failed to show any error in the AO’s examination. Conclusion: The Tribunal quashed the order passed by the CIT(E) under Section 263, holding it unsustainable. It emphasized that the CIT(E) did not provide any substantial evidence or conduct additional enquiry to prove the AO's order was erroneous. The Tribunal also upheld the principle that once an order is rectified under Section 154, it loses its identity to the extent of the rectification, and any revision should be directed towards the rectified order. The appeal of the assessee was allowed, and the order of the CIT(E) was quashed.
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