2024 (8) TMI 119 - HC - Income Tax

Revision u/s 263 - whether in the second round of litigation Commissioner of Income Tax was justified in invoking his power u/s 263? - HELD THAT - We find that the Tribunal has examined the factual position thoroughly and it has noted that in compliance with the direction issued by the Commissioner under Section 263 by order the assessing officer commenced his scrutiny proceedings. The manner in which such scrutiny was done was taken note of the Tribunal. Tribunal noted the AO also called for the details of the share application money received during the year by the letter dated 6.5.2016 and also to the reply given by the assessee wherein full details were provided about the type of business carried on by the assessee, the audited financial statement, auditor s report note, NBFC auditors report from Reserve Bank, list of directors, details of trade payables, details of sundry debtors, list of purchases during the year. Tribunal also noted that the assessee had filed the details of allotment of equity shares to the three share subscribers and also the date-wise details which were filed regarding the information received from banking channels. Thus we find that the Tribunal was fully justified in concluding in favour of the assessee after noting that the assessing officer had conducted extensive enquiry on issues and directions mentioned in the order passed u/s 263 of the Act. Thus we find no grounds have been made out to interfere with the order passed by the learned Tribunal. Before parting we would like to observe that the understanding of the legal position by the PCIT , Kolkata IV in his order is incorrect. As observed that any order passed subsequent to the order u/s 263 must be in favour of the revenue. As been observed that earlier there is income which could be enhanced or could be the same as earlier order but with the enhanced enquiry so that the addition should be strengthened to pass the test of appellate proceedings, this proceedings is erroneous when the Commissioner exercised power u/s 263 of the Act the twin conditions which have been laid down and reiterated in several decisions including the decision of the Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT , CIT vs. Max India Limited 2007 (11) TMI 12 - SUPREME COURT has to be complied with. In absence, of such compliance the question of making an addition similarly the proceedings has been drawn u/s 263 is an incorrect interpretation of the legal position.

Summary

Issues:
1. Delay in filing the appeal.
2. Interpretation of Section 263 of the Income Tax Act, 1961.
3. Justification of invoking power under Section 263 by the Commissioner of Income Tax.
4. Compliance with the directions issued under Section 263.
5. Legal position regarding orders subsequent to Section 263.

Analysis:
1. The High Court of Calcutta addressed a delay of 16 days in filing the appeal, which was condoned after being satisfied with the explanation provided. The appeal was filed under Section 260A of the Income Tax Act, 1961, against the order passed by the Income Tax Appellate Tribunal for the assessment year 2012-13.

2. The key issue in the case was the interpretation of Section 263 of the Income Tax Act, 1961. The Court considered whether the Commissioner of Income Tax was justified in invoking his power under this section in the second round of litigation. The Tribunal had set out detailed reasons supporting its conclusion in favor of the assessee, citing relevant case law, including the decision of the Supreme Court in the case of PCIT vs. NRA IRON & STEEL PVT. LTD. The Tribunal noted that the assessing officer had conducted a thorough scrutiny in compliance with the directions issued under Section 263.

3. The Court examined whether the Commissioner was justified in invoking his power under Section 263. The Tribunal's detailed examination of the factual position, including the scrutiny proceedings and the information provided by the assessee, led to the conclusion that the Tribunal was justified in deciding in favor of the assessee. The Court found no grounds to interfere with the Tribunal's order.

4. The Court emphasized the importance of compliance with the directions issued under Section 263. It noted that the assessing officer had conducted an extensive inquiry into the issues mentioned in the order dated 2.12.2015 passed under Section 263. The Tribunal considered the details provided by the assessee regarding share application money, business activities, financial statements, and other relevant information.

5. Regarding orders subsequent to Section 263, the Court clarified the legal position. It observed that any order passed subsequent to the Section 263 order must be in favor of the revenue only if the twin conditions laid down in various decisions, including the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, are complied with. The Court highlighted that an incorrect interpretation of the legal position could lead to erroneous proceedings under Section 263. Ultimately, the Court dismissed the appeal filed by the revenue and answered the substantial questions of law against the revenue.