2025 (1) TMI 1346 - AT - Income Tax

Revision u/s 263 - show cause notice issued on the basis of the audit objection - Raising of New Issues by PCIT - HELD THAT -There is a limitation of two years for the purposes of initiating the proceedings u/s 263 as per the Act as per the judgment of Tulsi Tracom Private Limited 2017 (9) TMI 1041 - DELHI HIGH COURT Notice issued by the PCIT on 17.2.2022 brining in new issues was beyond two years from the end of the assessment year in which the assessment was made. Therefore the second notice of 17.2.2022 was not a valid one. Accordingly the order as passed by the PCIT is quashed on this issue as well. Unexplained investment in immovable property and the ICICI Bank account - Even on merits we find that the investment in immovable property and the deposit in the ICICI Bank account were subject matter of issue of notice u/s 148. AO was well aware of the issues involved while framing the assessment for which he raised specific queries which were replied along with documentary evidence which were furnished before the A.O. further regarding the ICICI Bank account AO did not agree with the audit objection and clarified that ICICI Bank account was part of the record lying in the other folder as per the annotated report reproduced above. Thus it is not a case of inadequate enquiry rather the A.O. had made the enquiry and also by relying upon the various judgments of the Apex Court and of the Chandigarh Bench particularly of Loil Continental Foods 2019 (12) TMI 263 - ITAT CHANDIGARH we hold that even on merits the issue of notice u/s 263 was bad in law as the A.O. had made the necessary enquiries on both the issues and thus the order as passed by the PCIT both on legal and merits of the case is quashed. Assessee s appeal is allowed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

1. Whether the delay of 748 days in filing the appeal by the assessee should be condoned.

2. Whether the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 was justified, particularly in light of the alleged lack of examination of the ICICI Bank account by the Assessing Officer (A.O.).

3. Whether the PCIT was within their rights to raise new issues in the subsequent notice under Section 263 after the initial order was set aside by the ITAT.

4. Whether the proceedings under Section 263 could be initiated based solely on an audit objection.

5. Whether the A.O. had adequately examined the issues related to the investment in immovable property and the cash deposits in the ICICI Bank account during the original assessment proceedings.

ISSUE-WISE DETAILED ANALYSIS

1. Condonation of Delay

The Tribunal considered the application for condonation of delay, which was filed due to a change of counsel and the subsequent misunderstanding regarding the appealability of the PCIT's order under Section 263. The Tribunal referred to precedents where delays were condoned due to counsel's advice and found that the delay was bona fide. Thus, the delay was condoned, allowing the appeal to be heard on merits.

2. Validity of PCIT's Order under Section 263

Relevant Legal Framework and Precedents: Section 263 allows the PCIT to revise an order if it is erroneous and prejudicial to the interests of the revenue. However, it cannot be based solely on audit objections, as established by various precedents.

Court's Interpretation and Reasoning: The Tribunal found that the PCIT's initiation of proceedings under Section 263 was primarily based on an audit objection regarding the non-examination of the ICICI Bank account. The Tribunal cited several cases, including those from the Punjab & Haryana High Court, which held that proceedings under Section 263 cannot be initiated solely on audit objections.

Key Evidence and Findings: The A.O.'s annotated report to the audit party indicated that the ICICI Bank account was considered during the assessment, contradicting the audit objection.

Application of Law to Facts: The Tribunal concluded that the PCIT's reliance on the audit objection without independent application of mind was not justified, rendering the Section 263 proceedings invalid.

Treatment of Competing Arguments: The Revenue argued that the PCIT was within rights to raise new issues, but the Tribunal found that the scope of the remand was limited to the original issues raised.

Conclusions: The Tribunal quashed the PCIT's order under Section 263, finding it unjustified both legally and on merits.

3. Raising of New Issues by PCIT

Relevant Legal Framework and Precedents: The scope of a remand is limited to the issues originally raised, and new issues cannot be introduced beyond the statutory time limit.

Court's Interpretation and Reasoning: The Tribunal noted that the PCIT issued a fresh notice raising new issues beyond the statutory time limit, which was not permissible.

Key Evidence and Findings: The Tribunal referred to the sequence of events and the statutory two-year limitation for initiating proceedings under Section 263.

Application of Law to Facts: The Tribunal found that the new issues raised by the PCIT were beyond the permissible scope and time limit.

Treatment of Competing Arguments: The Revenue's justification for raising new issues was rejected as exceeding jurisdiction.

Conclusions: The Tribunal quashed the order based on the invalidity of the new issues raised.

4. Examination of Issues by A.O.

Relevant Legal Framework and Precedents: Adequate examination by the A.O. negates the need for revision under Section 263.

Court's Interpretation and Reasoning: The Tribunal found that the A.O. had duly considered the investment in immovable property and the ICICI Bank account during the original assessment proceedings.

Key Evidence and Findings: The A.O.'s report and the documents submitted during the original assessment were part of the record.

Application of Law to Facts: The Tribunal concluded that there was no lack of enquiry or application of mind by the A.O.

Treatment of Competing Arguments: The Revenue's argument of inadequate enquiry was dismissed based on the evidence of due consideration by the A.O.

Conclusions: The Tribunal held that the A.O. had adequately examined the issues, rendering the Section 263 proceedings unnecessary.

SIGNIFICANT HOLDINGS

Core Principles Established: Proceedings under Section 263 cannot be based solely on audit objections, and the scope of remand is limited to the original issues raised. New issues cannot be introduced beyond the statutory time limit.

Final Determinations on Each Issue: The Tribunal quashed the PCIT's order under Section 263, both on legal grounds and on merits, allowing the assessee's appeal.

Verbatim Quotes of Crucial Legal Reasoning: "The Ld. PCIT was not justified in exercising his power to invoke the provisions of sections of 263 of the act on the basis of audit objection by the audit wing of the department."

The Tribunal's decision underscores the importance of independent application of mind by tax authorities and adherence to procedural limitations in revision proceedings.

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