An invalid or illegal assessment order cannot be revised under the provision of section 263
In a recent judgment, Hon’ble ITAT has held that an assessment order which is not valid/maintainable under the provisions of the Act, cannot be revised by the CIT/PCIT under the provision of section 263 of the Act.
ABCAUS Case Law Citation:
ABCAUS 3960 (2024) (04) ITAT
Important Case Laws relied upon:
PILCOM vs. ITO
Rohit Kumar Gupta vs. PCIT reported in [2019] 109 taxmann.com 257 (Delhi)
Peter Vaz vs. CIT reported in 128 taxmann.com 180
In the instant case, the assessee had challenged the order passed under section 263 by the the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961 (the Act).
The appellant assessee was an individual and part of the Barter/accommodation entry provider group which was subject to search proceedings under section 132 of the Act. Accordingly, the proceedings under section 153A of the Act were initiated in the case of the assessee for the assessment year under consideration.
Finally, the assessment under section 143(3) r.w.s. 153A of the Act was completed after making various additions to the return income declared by the assessee.
The assessee against the assessment order filed an appeal before the commissioner appeal being first appellate authority challenging the merit of the addition as well the validity of the assessment order on account of limitation which was pending.
Meanwhile, the PCIT on examining the assessment records noticed that the assessee during the year under consideration entered a MOU with a company for the purchase of property for a large consideration out of which major amount was paid in cash. The AO during the assessment proceedings failed to verify/consider the source of such cash payment against the property deal.
Therefore, the PCIT by exercising the power conferred under section 263 of the Act set aside the assessment order by holding same as erroneous insofar prejudicial to the interests of revenue for the limited issue of cash payment.
Before the Tribunal, the assessee contended that the assessment order passed under section 143(3) r.w.s. 153A of the Act which was subject to revision under section 263 of the Act was invalid as the same was passed beyond the time limit provided under section 153B of the Act.
On the issue of maintainability of the appeal on the same issue which was pending before CIT(A), the Tribunal opined that the legal ground which goes to the very root/validity of the any proceeding can be raised by the assessee at any stage or before the higher authority for the first time. Further, the assessee was in the appeal against the order under section 263 of the Act. It was also not the case where the issue raised requires production of new material or evidence. Therefore, in our considered opinion the present assessee cannot be prohibited to raise legal ground challenging the validity of the assessment order.
The Tribunal observed that the provision of section 153B(1) of the Act as amended by Finance Act 2016 provides that the assessment under section 153A of the shall be made within a period of 21 month from the end of the financial year in which the last of the authorization of the search was executed.
The Revenue contended that the search was conducted before the amendment brought by the Finance Act 2016 reducing the assessment period from 24 months to 21 months, therefore in the case of present assessee, time limit available to the AO for 24 month.
The Tribunal opined that limitation period provided under section 153B(1) of the Act before the amendment will be applicable i.e. 24 months from the end of financial year in which last of authorization of search was executed.
The Tribunal opined that in the case of the assessee, multiple references were made for exchange of information in different countries through FT & TR that period commencing from the reference or first of the reference made to the date on which last of information received or 12 month whichever is less shall be excluded. Hence, the AO will not get any benefit of time on account of reference to FT& TR in the given facts and circumstances.
The Tribunal further noted that the assessee has filed an application under section 245C of the Act before the settlement commission which was rejected under section 245D(1) of the Act. The Tribunal further noted that the Act provides that the period beginning with the date on application made under section and ending with the date on which order under section 245D(1) of the Act rejecting the application was received by the by PCIT or CIT subject to 60 days as provided under first proviso below to the explanation shall be excluded.
The Revenue contended that in the case of the assessee, the proceeding before the settlement commission has been abated and the exclusion period is less than one year, hence as per the 3rd Proviso below to explanation to section 153B of the Act, the same shall deemed to be extended for one year. Accordingly, it was contended the assessment order was well within the time limit prescribed under section 153B of the Act.
In this regard, the Tribunal observed that the said proviso in relation to abatement of proceeding before settlement commission was brought under section 153B of the Act vide Finance Act 2017 and made applicable w.e.f. 1st April 2017 whereas in the case of the present assessee search under section 132 of the Act and consequent proceeding under section 153A of the Act was initiated long before the impugned proviso inserted and made applicable. Hence, the same will not be made applicable in the present case.
The Tribunal observed that the assessment order under section 143(3) r.w.s. 153A of the Act was passed after the expiry of the time limit for making assessment in the given facts and circumstances. Hence the same was done beyond the statutory time limit. Therefore, the assessment was invalid due to limitation.
The Tribunal stated that it is settled position of law that an assessment order which is not valid/maintainable under the provisions of the Act, cannot be revised by the CIT/PCIT under the provision of section 263 of the Act.
Therefore, the Tribunal quashed the order passed under section 263 of the Act as not maintainable.
Download Full Judgment ABCAUS 3960 (2024) (04) ITAT Click Here >>
- No statutory requirement of pre-deposit for stay of demand under Income Tax Act – HC
- Engagement of Company Secretaries as Young Professionals at RoC Mumbai and Pune
- Applicability of Section 115BBE rws 69, 69A 69C in a case before Settlement Commission
- Jewellery purportedly received from grandparent under Will added as unexplained credits
- SC lays down tests to determine if a debt is financial debt or operational under IBC
