2016 (9) TMI 1686 - AT - Income Tax

Revision u/s 263 - originally the assessment had been completed u/s 143(3) - CIT has specified that the assessee has violated the provisions of section 40(a)(ia) - HELD THAT - As in view of the decision of Smt. Sunita Ajit Patil 2016 (6) TMI 1505 - ITAT PANAJI the assessee could not have filed appeal to the Commissioner of Income Tax (Appeals) against the said assessment order giving effect to the order under section 263. Thus as Tribunal has held that an appeal is not maintainable against the order passed by the AO giving effect to the order passed under section 263 by the Commissioner of Income Tax. This being so the order passed by the Commissioner of Income Tax (Appeals) stands set aside and that of the Assessing Officer is restored.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether an appeal lies before the Commissioner of Income Tax (Appeals) against an order passed by the Assessing Officer giving effect to the Commissioner of Income Tax's order under section 263 of the Income Tax Act.
• The scope and effect of an order passed under section 263-specifically, whether such an order modifies the original assessment or cancels it and directs a fresh assessment, and the consequent procedural consequences.
• The jurisdiction of the Commissioner of Income Tax (Appeals) to entertain appeals against orders giving effect to section 263 orders.
• The applicability of precedent decisions, particularly the Coordinate Bench decision in the case of Smt. Sunita Ajit Patil, to the facts of the present case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of Appeal Against Order Giving Effect to Section 263 Order

Relevant Legal Framework and Precedents: Section 263(1) empowers the Commissioner of Income Tax to call for and examine any proceeding and, if the order passed by the Assessing Officer is erroneous and prejudicial to the revenue, to pass such order as justified, including enhancing, modifying, or cancelling the assessment and directing a fresh assessment. Section 253 provides for appeal against orders passed under section 263 to the appellate Tribunal. Section 143(3) and 144 relate to assessment orders appealable before the Commissioner of Income Tax (Appeals).

The Coordinate Bench decision in Smt. Sunita Ajit Patil's case was extensively relied upon. That decision clarified the nature of orders passed under section 263 and the consequent appealability of orders giving effect to such directions by the Assessing Officer.

Court's Interpretation and Reasoning: The Tribunal examined the language of section 263(1), emphasizing that the Commissioner's order may either modify/enhance the assessment or cancel it and direct a fresh assessment. The Tribunal noted that when the Commissioner modifies the original assessment, the Assessing Officer's subsequent order giving effect to this modification is not an independent assessment order under sections 143(3) or 144 but merely a consequential order implementing the Commissioner's directions.

Further, the Tribunal reasoned that the appeal against such consequential orders is not maintainable before the Commissioner of Income Tax (Appeals) since the appeal lies directly against the section 263 order before the appellate Tribunal under section 253.

Key Evidence and Findings: The Tribunal relied on the text of the section 263 order and the Assessing Officer's order giving effect to it. It was found that the Commissioner did not cancel the original assessment nor direct a fresh assessment but only modified the assessment.

Application of Law to Facts: Applying the principles from the precedent, the Tribunal held that the order passed by the Commissioner of Income Tax (Appeals) entertaining the appeal against the Assessing Officer's order giving effect to the section 263 order was without jurisdiction.

Treatment of Competing Arguments: The Revenue contended that no appeal lay before the Commissioner of Income Tax (Appeals) against the order giving effect to the section 263 order, relying on the Coordinate Bench decision. The assessee argued for the right to appeal against the assessment order passed by the Assessing Officer. The Tribunal sided with the Revenue's interpretation, aligning with the precedent.

Conclusions: The appeal before the Commissioner of Income Tax (Appeals) was held to be not maintainable, and the order passed by the Commissioner of Income Tax (Appeals) was set aside.

Issue 2: Nature and Effect of Section 263 Orders - Modification vs Cancellation and Fresh Assessment

Relevant Legal Framework and Precedents: Section 263(1) and section 153(2A) of the Income Tax Act were examined. The Tribunal also referred to the Hon'ble Bombay High Court decision in Gabriel India Ltd., which emphasized the necessity for specific directions when an assessment is cancelled and fresh assessment is directed.

Court's Interpretation and Reasoning: The Tribunal distinguished between two types of section 263 orders: (a) those modifying or enhancing the original assessment and (b) those cancelling the assessment and directing a fresh assessment. In the former, the Assessing Officer's order giving effect is not a fresh assessment but a compliance order. In the latter, a fresh assessment must be conducted within prescribed time limits.

The Tribunal underscored that if the Commissioner cancels the assessment and directs a fresh one, the Assessing Officer acts under section 153(2A) and the appeal lies accordingly. However, if only modification is directed, the Assessing Officer's order is not appealable before the Commissioner of Income Tax (Appeals).

Key Evidence and Findings: The Commissioner's order in the present case was examined and found to be a modification order without cancellation or direction for fresh assessment.

Application of Law to Facts: Since the order was only a modification, the Assessing Officer's order giving effect to it was not an independent assessment order and hence not appealable before the Commissioner of Income Tax (Appeals).

Treatment of Competing Arguments: The Revenue's argument that the appeal before the Commissioner of Income Tax (Appeals) was not maintainable was accepted. The assessee's contention that the order was an assessment order and hence appealable was rejected.

Conclusions: The Tribunal concluded that the order under section 263 was a modification, not cancellation and fresh assessment, and hence the appeal before the Commissioner of Income Tax (Appeals) was without jurisdiction.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is preserved verbatim as follows:

"An order giving effect to an order passed under section 263 by the Commissioner of Income Tax is not an appealable order before the Commissioner of Income Tax (Appeals) or the appellate Tribunal insofar as when the Commissioner of Income Tax invokes his powers under section 263 he is invoking his coterminous powers of the Assessing Officer and is doing the assessment in the shoes of the Assessing Officer after examining or causing inquiry to be conducted as provided in the provisions of section 263."

"If the entire assessment has not been cancelled and only a part of the assessment order is tinkered with by the Commissioner of Income Tax under section 263, it falls under the category of enhancing or modifying the assessment. The enhancing or modifying the assessment having been by the Commissioner of Income Tax, the Assessing Officer is precluded from applying his opinion to such enhancement or modification and consequently the order giving effect by the Assessing Officer in respect of such enhancement or modification cannot be challenged in appeal before the Commissioner of Income Tax (Appeals), insofar as it would in effect be a challenge before the Commissioner of Income Tax (Appeals) in respect of order passed under section 263 by the Commissioner of Income Tax."

Core principles established include:

• An order passed by the Commissioner of Income Tax under section 263 modifying the original assessment does not convert the Assessing Officer's subsequent order giving effect into an independently appealable assessment order before the Commissioner of Income Tax (Appeals).
• Appeals against section 263 orders lie directly before the appellate Tribunal under section 253, not before the Commissioner of Income Tax (Appeals) against the Assessing Officer's consequential order.
• Only when the section 263 order cancels the assessment and directs a fresh assessment does the Assessing Officer conduct a fresh assessment under section 153(2A), which may then be appealable.
• Failure by the Commissioner to give specific directions for fresh assessment renders a cancellation order under section 263 unsustainable.

Final determinations on each issue were:

• The appeal filed by the assessee before the Commissioner of Income Tax (Appeals) against the order giving effect to the section 263 order was held to be without jurisdiction and was set aside.
• The Assessing Officer's order giving effect to the section 263 order was restored.
• The appeals filed by the Revenue against the Commissioner of Income Tax (Appeals) orders were allowed.