2022 (3) TMI 918 - AT - Income Tax

Revision u/s 263 - denial of natural justice - assessee has argued on the legality of the order passed which is stated to be an arbitrary exercise of power as order is assailed as having been passed without caring to provide reasonable opportunity of being heard to the assessee leading to the order being passed in a mechanical manner - Whether the order has been passed ignoring the submissions of the assessee admittedly received on the ITBP portal and incorrectly noting that no reply has been given by the assessee? - qua the increase in share application pending before the CIT(A) the assessee had opted for Vivad Se Vishwas Scheme - HELD THAT - we deliberate that if the ld. PCIT who knowingly gives inadequate time to the assessee to file its reply considering the reply filed irrelevant notices that the assessee is seeking time we do not find any reason why the ld. PCIT could not grant a hearing saying that time has been granted fix a date and then pass the order after hearing the assessee. However in the facts of the present case ld. PCIT fails to do so. So whether the reply was noticed or remained un-noticed the consequences are that if it was noticed ld. PCIT failed to do what he was required to do and if it was not noticed then he passed an order mechanically These facts when further noticed in the backdrop where the ld. PCIT after issuing the Short Cause Notice on 23.11.2020 sat over the very same information made no efforts from any source whatsoever to address the specific facts or the specific concerns from any other information in the public domain or made any efforts seeking information from the Investigation Wing of the Department sat over the information for a period of almost 5 months and passed the order upsetting a statutory order which has been passed without any compunction. The said arbitrary exercise of power we find cannot be upheld. Notwithstanding the fact that the right to be heard is very important and salient right which cannot be allowed to be trifled with. It has been noted judicially across all common law countries of the world. No decisions need be cited to quote that it is a well settled legal position that no party can be visited by an adverse order without being heard. The blatant fact staring on the face of the record is that not only the power has been exercised in an arbitrary unfair manner contrary to settled legal positions it has also been exercised where the ld. PCIT himself failed to do what he was required to do. The fact also appears that the provisions of the Act necessitated that the ld. PCIT before upsetting a statutorily passed order exercising the revisionary powers is expected to do the basic exercise of undertaking enquiries etc. at his end. It is incumbent upon him to undertake an enquiry and set out the facts. This exercise in the facts of the present case has not been done. Accordingly we find that the appeal has to be allowed. The position of law as considered for service of notice which proceeds on the footing that effective opportunity of being heard was denied to the assessee we find the order passed deserves to be quashed. Accordingly considering the factual background as discussed above at length and the position of law we deem it appropriate to quash the order passed on the legal grounds itself. Hence the arguments advanced by the parties on merits though noticed in the order need not be adjudicated upon consequently. Appeal of assessee allowed.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Assessment order being erroneous and prejudicial to the interest of the Revenue.
3. Application of mind and thorough investigation by the Assessing Officer.
4. Invocation of Explanation 2 to Section 263.
5. Opting for the Vivad Se Vishwas Scheme (VSV) by the appellant.
6. Opportunity of being heard by the Principal Commissioner of Income Tax (Pr. CIT).

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The appellant challenged the jurisdiction assumed by the Pr. CIT under Section 263(1) of the Income Tax Act, 1961, arguing that the order passed by the Assessing Officer (A.O.) under Section 143(3) was neither erroneous nor prejudicial to the interests of the Revenue. The Tribunal noted that the Pr. CIT did not point out any specific shortcoming or error in the A.O.'s order and merely re-examined the same facts without bringing any new information on record. This action was deemed contrary to the principles justifying the invocation of Section 263.

2. Assessment Order Being Erroneous and Prejudicial to the Interest of the Revenue:
The Pr. CIT held that the assessment order dated 30.12.2018 was erroneous and prejudicial to the interests of the Revenue. The Tribunal observed that the A.O. had conducted a detailed inquiry into the issues flagged for scrutiny, including large value receipts or repayments of loans and large share premiums received during the year. The Tribunal found that the Pr. CIT's action of setting aside the assessment order without identifying specific errors was unjustified.

3. Application of Mind and Thorough Investigation by the Assessing Officer:
The appellant argued that the A.O. had applied his mind and conducted thorough investigations into the issues raised by the Pr. CIT. The Tribunal noted that the A.O. had made detailed inquiries, examined supporting evidence, and made necessary additions where required. The Tribunal held that the Pr. CIT could not re-evaluate the same evidence without pointing out specific errors, as this would violate the mandate of Section 263.

4. Invocation of Explanation 2 to Section 263:
The appellant contended that the Pr. CIT erred in invoking Explanation 2 to Section 263, as the A.O. had fully applied his mind to the issues. The Tribunal agreed with the appellant, noting that the A.O. had conducted a detailed examination and the Pr. CIT's re-evaluation of the same facts without new evidence was not justified.

5. Opting for the Vivad Se Vishwas Scheme (VSV) by the Appellant:
The appellant informed the Pr. CIT that it had opted for the VSV Scheme and had filed Form 1 & 2 before the issuance of the show cause notice under Section 263. The Tribunal observed that the Pr. CIT ignored this information and proceeded to pass the order without considering the appellant's request for additional time to respond due to the VSV Scheme. This was seen as an arbitrary exercise of power.

6. Opportunity of Being Heard by the Principal Commissioner of Income Tax (Pr. CIT):
The appellant argued that it was not given a reasonable opportunity to be heard, as the Pr. CIT issued the show cause notice on 23.11.2020, expecting a reply by 27.11.2020, and passed the order on 30.03.2021 without further communication. The Tribunal found that the Pr. CIT's failure to provide adequate time and consider the appellant's request for more time demonstrated a lack of fair exercise of power. The Tribunal held that the right to be heard is a fundamental principle of natural justice, and the Pr. CIT's actions violated this principle.

Conclusion:
The Tribunal quashed the order passed by the Pr. CIT under Section 263 on the grounds of lack of adequate opportunity and arbitrary exercise of power. The appeal of the assessee was allowed, and the assessment order dated 30.12.2018 was upheld. The Tribunal emphasized the importance of adhering to the principles of natural justice and the need for fair exercise of statutory powers by tax authorities.