2022 (9) TMI 189 - AT - Income Tax

Revision u/s 263 - As per CIT assessment order passed u/s 147 of the Act erroneous - Revision made as AO had failed to verify the capital gain returned by the assessee on property sold during the year with respect to the provisions of Section 50C - As per CIT AO had failed to substitute the sale consideration of the property sold by the assessee with its stamp duty value which was higher applying the provisions of Section 50C of the Act while computing the capital gain earned by the assessee - HELD THAT - We find merit in the contention of assessee that the assessment order passed by the AO could not be said to be erroneous since the issue of examination of long term capital gain on sale of land was beyond his domain as per section 147 of the Act. A bare perusal of the provisions of section 147 reveals that the jurisdiction of the AO is confined to assess issues on which he has reason to believe that income has escaped assessment and it is only if during the course of assessing these incomes that he is made aware of any other income escaping assessment that he can assess the other such income also. In the facts of the present case the issue raised by the Ld. PCIT being not the subject matter of reassessment nor it being the case of the Revenue that the issue had come to the notice of the AO during reassessment proceedings the assessing officer could not have considered this issue in reassessment proceedings. Therefore the assessment order passed u/s 147 of the Act in the present case cannot be said to be erroneous on the ground of the AO not having examined an issue which clearly was beyond his powers. The order passed under section 263 of the Act is accordingly held to be not sustainable in law. - Appeal of assessee allowed.

Summary

Issues:
1. Revisionary powers exercised by Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961.
2. Scope of assessment order passed under section 143(3) read with section 147 of the Act.
3. Jurisdiction of Assessing Officer (AO) in reassessment proceedings under section 147 of the Act.
4. Whether AO can consider issues beyond the scope of reasons recorded for reopening under section 147.
5. Interpretation of section 147 of the Income Tax Act regarding assessing escaped income.
6. Validity of revising assessment order based on issues not part of reassessment proceedings.

Analysis:

1. The appeal was filed against the order passed by the PCIT under section 263 of the Income Tax Act, revising the assessment order for Assessment Year 2012-2013. The PCIT exercised revisionary powers due to the AO's failure to verify capital gains on property sold by the assessee, which led to the assessment order being set aside for proper inquiry.

2. The assessment order was passed under section 143(3) read with section 147 of the Act. Reassessment proceedings were initiated to examine the claim of long-term capital gain on the sale of shares, not for the issue of capital gain on the sale of land. The AO's jurisdiction was limited to the reasons recorded for reopening under section 147.

3. The AO's jurisdiction in reassessment proceedings under section 147 was challenged. The assessee argued that the issue of capital gain on the sale of land was beyond the scope of reassessment, and the AO was not empowered to consider it. The AO's failure to examine this issue did not render the assessment order erroneous.

4. The debate centered on whether the AO could consider issues beyond the scope of reasons recorded for reopening under section 147. The DR argued that the AO had the authority to assess such issues, while the assessee contended that the AO's jurisdiction was limited to the reasons for reopening.

5. Section 147 of the Act outlines the AO's jurisdiction to assess escaped income. The ITAT decision in a similar case emphasized that the AO can only assess income that has escaped assessment based on the reasons for reopening. Any other income that comes to the AO's notice during proceedings can also be assessed, but it must be related to the escaped income.

6. The ITAT found merit in the assessee's argument that the assessment order under section 147 could not be considered erroneous for failing to examine an issue beyond the AO's powers. The order passed under section 263 was deemed unsustainable in law, leading to the appeal being allowed in favor of the assessee.

In conclusion, the judgment clarified the scope of the AO's jurisdiction in reassessment proceedings under section 147, emphasizing that the AO must limit assessments to issues related to the reasons for reopening. The revisionary powers of the PCIT were deemed unsustainable in revising an assessment order based on issues not part of the reassessment proceedings.