Revisionary Authority Could Not Exercise Jurisdiction U/s 263 When Larger Issue Was Pending Before CIT(A): Chennai ITAT

The Chennai ITAT held that the impugned revision u/s 263 of the Income Tax Act, 1961, was bad-in-law and liable to be quashed, while pointing that when larger issue was pending before CIT(A), the revisionary authority could not exercise jurisdiction u/s 263.

Referring to the decision of Madras High Court in the case of Smt. Renuka Philip vs. ITO (409 ITR 567), the Bench comprising V. Durga Rao (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) observed that, “for the purpose of exercise of jurisdiction under Section 263 of the Act, the twin tests are to be satisfied and even assuming, the re-assessment order is to be held as erroneous, it cannot be stated to be prejudicial to the interest of Revenue as every erroneous order cannot be subject matter of Revision under Section 263 of the Act. Furthermore, if the order passed by the Commissioner under Section 263 of the Act as confirmed by the Tribunal is allowed to stand, then the very purpose of the remand order against the original re-assessment proceedings would become a fait accompli.” (Para 7)

As per the brief facts of the case, the Assessee's return was selected for scrutiny, wherein AO found certain incriminating material in the office premises containing details of transaction of certain group with the assessee. The same led to initiation of proceedings u/s 153C against the assessee and notice u/s 153C was issued to the assessee. The assessee filed return based on which impugned assessment was framed. It also transpired that on the date of issue of notice u/s 153C, reassessment proceedings u/s 147 was pending against the assessee for this year. The assessment framed u/s 143(3) was already reopened and notice u/s 148 was issued to the assessee to make disallowance u/s 40(a)(ia). The AO, considering the submissions of the assessee, made disallowance u/s 40(a)(ia) and completed the assessment u/s 153C r.w.s 144.

The CIT sought revision on the ground that there was escapement of income since the assessee did not disallow the donations and CSR expenses which were not incurred for the purpose of business. The CIT also observed that the AO omitted to consider the two issues for which the assessment was opened and the same make the order erroneous and prejudicial to the interest of the revenue.

The Bench noted that the assessee challenged this assessment on legal grounds as well as on merits before first appellate authority which is stated to be pending on the date of proposed revision.

The Bench observed that in the pending appeal against order passed u/s 153C r.w.s. 144, the assessee has questioned the legality of reassessment proceedings u/s 147, inter-alia, on the ground that no fresh material came into the possession of AO so as to form an opinion of escapement of income.

The Bench found that the proceedings u/s 147 was bad in law and the scope of assessment u/s 153C would not include the scope of reassessment u/s 147.

The Bench further observed that since the larger issues including legal issues are already pending before first appellate authority, the order passed by O, in our considered opinion, could not be subjected to revision u/s 263.

The Coram stated that in such situation, the assessee's case would cover under Clause (c) of Explanation-1 to Sec. 263 which puts a bar on initiation of revision u/s 263 when an appeal is pending before CIT(A).

Therefore, on finding no reason for reopening the case, the ITAT allowed the assessee's appeal.

Counsel for Appellant/ Taxpayer: T.S. Lakshmi Venkatraman

Counsel for Respondent/ Department: V. Nandakumar

Case Title: M/s. Golden Vats Private Limited verses ACIT

Case Number: ITA No.416/Chny/2023

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