Commissioner cannot exercise jurisdiction under section 263 of the Act, when assessment has been made after obtaining approval of the Range Head
In a recent judgment, ITAT Lucknow quashed revisionary order u/s 263 confirming that Commissioner cannot exercise jurisdiction under section 263 when assessment has been made after obtaining approval of the Range Head.
ABCAUS Case Law Citation:
4386 (2025) (01) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the PCIT in assuming revisionary jurisdiction u/s 263 of the Income Tax Act, 1961 (the Act) and canceling the assessment on the ground that Assessing Officer did make inquiries about the assessee’s claim for Long Term Capital Gain.
A search u/s 132 of the Act was conducted in the case of the assessee. Subsequently, the assessment order was passed by the Assessing Officer determining assessee’s total income. The order was passed after approval of the Range Head under section 153D of the Act.
Later, the PCIT passed under section 263 of the Act, and set aside the assessment with the direction to the Assessing Officer to pass fresh orders. According to PCIT, the AO failed to make inquiries about the assessees claim for Long Term Capital Gain.
Before the Tribunal, the assessee relied upon the judgment of the jurisdictional High Court wherein it was held that Commissioner would not be justified in interfering with the approval granted by Range Head for forming assessment orders.
The assessee also relied upon the decision of the Co-ordinate Benches of the ITAT wherein it had been held that assessment order cannot be revised under section 263 of the Act, when the approval granted by the Range Head has not been revised by the Commissioner.
The assessee further submitted that while giving approval no deficiency in the assessment order was pointed out by the Range Head. He also submitted the assessment was made in Central Charge of Income Tax Department; and that it is common knowledge that in Central Charges of Income Tax Department, the assessments are regularly monitored by Range Head and the PCIT and, if the Range Head or PCIT wanted particular inquiries to be made, they should have indicated the same to the Assessing Officer during the process of monitoring.
The assessee further submitted that in search cases Investigation Wing of Income Tax Department prepares a comprehensive ‘Appraisal Report’ which takes into account all the incriminating materials, statements seizures etc. and also suggests their estimate of undisclosed income, as well as suggested lines of further investigation to be conducted at the end of the Assessing Officer.
It was further submitted that the Appraisal Report is approved by an officer of the rank of Principal Commissioner of Income tax and if the Assessing Officer deviates from the Appraisal Report, he has to bring on record the reasons for the deviation; and in the present case, there was no deviation note on record which implies that all the lines of inquiry as suggested in Appraisal Report (duly approved by Principal Director of Income Tax an officer of the rank of the PCIT) have been duly considered by the Assessing Officer. It was also submitted that the PCIT, in exercise of his jurisdiction under section 263 of Income Tax Act should not have gone beyond the lines of investigation suggested in the Appraisal Report because the Appraisal Report was approved by an officer of the rank of the PCIT.
The assessee further contended that the show cause notice of SEBI on which the PCIT placed reliance was not available before the Assessing Officer at the relevant time and, therefore, the assessment order cannot be said to be erroneous or prejudicial to the interest of Revenue, if, the material relied upon by the PCIT was not available with the Assessing Officer during the assessment proceedings.
The Tribunal observed that the Assessing Officer, vide his notice had made inquiry regarding the Long Term Capital Gain claimed by the assessee. Also, the assessee was asked to show cause why the Long Term Capital Gain should not be disallowed and added back to the income of the assessee. The assessee had furnished categorical replies to the statements of six persons recorded by Investigation Wing of Kolkata which was available before the Assessing Officer, which was duly considered by the Assessing Officer.
Further, the Tribunal noted that in the office note of the assessment order, the Assessing Officer had categorically recorded the conclusion that the assessee had furnished detailed reply along with documentary evidences as regards Long Term Capital Gain which were placed on record and were verifiable.
Further the Tribunal observed that the assessment proceedings were under the monitoring of the Range Head and the assessment order was approved by the Range Head as recorded in the assessment order. This gives strong presumption that even the Range Head was satisfied with lines of investigation, and nature and scale of the inquiries made by the Assessing Officer before passing the assessment order.
The Tribunal further observed that the show cause notice issued by the SEBI, on which having reliance had been placed by PCIT, was not available to the Assessing Officer when the assessment order was passed, and was not even in existence. The order passed by the Assessing Officer cannot be held to be erroneous on the basis of materials that came to surface subsequent to passing of the assessment order.
The Tribunal also noted that Hon’ble jurisdictional High Court had held that assessment order cannot be revised by Commissioner under section 263 of the Act unless approval granted by the Range Head in also revised (set aside) by the Commissioner.
Therefore, the Tribunal held that the order of the PCIT holding the assessment order to be erroneous and prejudicial to interests of Revenue, was not supported by credible material and, therefore, was unsustainable.
Accordingly, the impugned order of the PCIT passed under section 263 of the Act was set aside and the assessment order of the Assessing Officer was restored.
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