No revision u/s 263 if assessment order is neither erroneous nor prejudicial to the interest of revenue
The case detail is as under:
Case Citation: Panache Dealtrade Pvt. Limited vs. Principal Commissioner of Income Tax (Central), Kolkata
Case No.: ITA No. 977/KOL/2024
Date of Decision: November 18, 2024
Court: ITAT Kolkata
Let us have a Short Overlook of the Case:
1. Initial Filing and Assessment:
• The assessee filed its income tax return on 21.01.2014, declaring a total income of ₹8,02,980, which was processed under Section 143(1) of the Income Tax Act, 1961.
2. Reassessment Proceedings:
• Based on information regarding transactions totaling ₹1,45,00,000 with three parties:
• M/s. Rudramukhi Builders Pvt. Limited
• M/s. Shivpariwar Commercial Pvt. Limited
• M/s. Leiline Commosales Pvt. Limited
• Notice under Section 148 was issued on 20.03.2020, after approval from the PCIT, alleging escapement of income.
• The reassessment order under Sections 147/144, dated 27.09.2021, added ₹1,55,00,000 to the assessee’s income, including ₹10,00,000 from M/s. Lemon Grass Project Pvt. Limited, which came to light during the proceedings.
3. PCIT’s Revision under Section 263:
• The PCIT observed that the AO failed to examine additional information provided by the DDIT (Investigation) regarding alleged bogus loans totaling ₹3,13,00,000 from four other entities.
• Citing this as a lapse, the PCIT invoked Section 263, set aside the reassessment order, and directed the AO to reframe it after examining these additional transactions.
Observations by the Tribunal
1. Scope of AO’s Reassessment:
• The AO had properly examined the ₹1,45,00,000 transactions identified at the time of reopening and also added ₹10,00,000 during the reassessment.
• The alleged loans of ₹3,13,00,000 from four additional parties were neither part of the original scope nor surfaced during the reassessment.
2. Legal Principles:
• For invoking Section 263, an order must be both erroneous and prejudicial to the revenue’s interest, as held in Malabar Industrial Co. Ltd. v. CIT (243 ITR 83).
• The tribunal noted that the AO’s assessment was not erroneous, as the scope of reassessment was limited to the ₹1,45,00,000 transactions, and the PCIT could not expand its jurisdiction to include new issues beyond what was examined by the AO.
3.Explanation 3 to Section 147:
•The tribunal clarified that Explanation 3 to Section 147 allows the AO to assess income that comes to light during reassessment proceedings. However, it does not mandate the AO to examine unrelated information not initially forming the basis of reassessment.
• Conclusion
The ITAT held that the PCIT exceeded his jurisdiction under Section 263. The reassessment order under Sections 147/144 was neither erroneous nor prejudicial to the interest of revenue. Accordingly, the tribunal quashed the PCIT’s revisionary order, affirming the validity of the AO’s reassessment.
The copy of the order is as under:
