2025 (5) TMI 191 - AT - Income Tax

Validity of order u/s 263 - challenge to second reassessment order - Addition of undisclosed income u/s 69 - HELD THAT - It is crystal clear that PCIT exercised revisional jurisdiction regarding assessment order dated 29.03.2022. Ld. AO had passed second reassessment order dated 30.01.2024. So there was no cause of action left for PCIT to adjudicate on order dated 29.03.2022. In view of above material facts and well settled principles of law noticed in Tata AIG Life Insurance Co. Ltd. s case 2023 (10) TMI 689 - ITAT MUMBAI it is apparent on record that the earlier assessment order dated 29.03.2022 after passing of order dated 30.01.2024 was non-existent therefore PCIT had no cause of action to exercise the revisional powers. Accordingly impugned order dated 31.03.2024 of Ld. PCIT is illegal and set aside. The ground of appeal is allowed.

Summary

Issues Presented and Considered

The core legal questions considered by the Tribunal are:

1. Whether the Principal Commissioner of Income Tax (PCIT) had jurisdiction to exercise revisional powers under Section 263 of the Income-Tax Act, 1961, against the reassessment order dated 29.03.2022 when a subsequent reassessment order dated 30.01.2024 had been passed by the Assessing Officer (AO), thereby superseding the earlier order.

2. Whether the reassessment order dated 29.03.2022 was erroneous and prejudicial to the interests of revenue, justifying revision under Section 263.

3. The applicability of the legal principle that a subsequent reassessment order effaces the earlier order, and the consequent effect on the revisional jurisdiction of the PCIT.

Issue-wise Detailed Analysis

Issue 1: Jurisdiction of PCIT to revise the reassessment order dated 29.03.2022 under Section 263 after a subsequent reassessment order dated 30.01.2024 was passed

Relevant Legal Framework and Precedents: Section 263 of the Income-Tax Act empowers the PCIT to revise any order passed by an AO if that order is found to be erroneous and prejudicial to the interests of revenue. However, the jurisdiction to revise is contingent upon the existence of a subsisting and operative order. The Supreme Court in ITO vs. K.L. Srihari (HUF) (2001) 250 ITR 193 held that when a reassessment order is passed afresh, it effaces the earlier assessment order, which ceases to exist in law.

Court's Interpretation and Reasoning: The Tribunal examined the sequence of orders. The AO had initially passed the reassessment order dated 29.03.2022. Subsequently, a second reassessment order was passed on 30.01.2024, which accepted the returned income. The PCIT, however, passed a revision order on 31.03.2024 targeting the earlier order of 29.03.2022.

The Tribunal noted that the earlier order dated 29.03.2022 was superseded and obliterated by the later order dated 30.01.2024. Therefore, at the time when the PCIT exercised revisional jurisdiction, the 29.03.2022 order no longer existed in law. Consequently, the PCIT had no cause of action to revise an order that was not subsisting.

Key Evidence and Findings: The record established that the second reassessment order was operative and had replaced the earlier order. The PCIT's revision order was passed after this second reassessment, rendering the earlier order non-existent.

Application of Law to Facts: Applying the principle from K.L. Srihari (HUF), the Tribunal concluded that the revisional jurisdiction under Section 263 could not be exercised against a non-existent order. The PCIT's order was therefore without jurisdiction.

Treatment of Competing Arguments: The Department contended that the PCIT was justified in revising the order dated 29.03.2022. However, the Tribunal rejected this, relying on the settled legal principle that a subsequent reassessment order effaces the earlier order, and thus the PCIT cannot revise an order that has been superseded.

Conclusions: The PCIT lacked jurisdiction to revise the reassessment order dated 29.03.2022 after the subsequent reassessment order dated 30.01.2024 was passed. The revision order dated 31.03.2024 was illegal and liable to be set aside.

Issue 2: Whether the reassessment order dated 29.03.2022 was erroneous and prejudicial to the interests of revenue

Relevant Legal Framework and Precedents: Section 263 allows revision only if the order is both erroneous and prejudicial to the interests of revenue. The burden is on the revising authority to demonstrate such error and prejudice.

Court's Interpretation and Reasoning: The Tribunal did not delve deeply into the merits of the alleged error in the 29.03.2022 order because the jurisdictional issue was dispositive. Since the order was superseded by the subsequent reassessment, the PCIT's revisional powers could not be invoked.

Key Evidence and Findings: The appellant contended that the reassessment order dated 29.03.2022 was not erroneous or prejudicial, and that it was accepted by the AO in the subsequent order dated 30.01.2024. The Tribunal accepted this contention implicitly by holding that the order was superseded and operative only as per the later order.

Application of Law to Facts: Since the revisional jurisdiction could not be exercised on a non-existent order, the question of error and prejudice did not arise.

Treatment of Competing Arguments: The Department relied on the PCIT's order to argue error and prejudice. The Tribunal held that such reliance was misplaced due to the jurisdictional bar.

Conclusions: The Tribunal refrained from adjudicating on the merits of error and prejudice due to the jurisdictional infirmity in the PCIT's order.

Issue 3: Legal principle regarding effacement of earlier assessment order by subsequent reassessment order and its effect on revisional jurisdiction

Relevant Legal Framework and Precedents: The Supreme Court in K.L. Srihari (HUF) established that a fresh assessment order passed under reassessment provisions replaces and effaces the earlier assessment order. This principle was reiterated by the Mumbai Bench of ITAT in Tata AIG Life Insurance Co. Ltd. (2023).

Court's Interpretation and Reasoning: The Tribunal adopted this principle to hold that the reassessment order dated 30.01.2024 effaced the earlier order dated 29.03.2022. Consequently, the earlier order ceased to exist in law and could not be the subject matter of revision under Section 263.

Key Evidence and Findings: The factual matrix showed that the AO had made a fresh assessment in the second reassessment order, thereby replacing the earlier order.

Application of Law to Facts: The Tribunal applied the principle to the facts, concluding that the PCIT's revisional jurisdiction could only be exercised over a subsisting order, which was not the case here.

Treatment of Competing Arguments: The Department's reliance on the earlier order for revision was rejected as legally untenable.

Conclusions: The principle that a subsequent reassessment order effaces the earlier order is binding and determinative of the jurisdictional issue in this case.

Significant Holdings

"It is apparent on record that the earlier assessment order dated 29.03.2022 after passing of order dated 30.01.2024 was non-existent, therefore, Ld. PCIT had no cause of action to exercise the revisional powers."

"The PCIT could have assumed jurisdiction only in the event of a subsisting and live order which was existent and operative. At the time when the Ld. Pr.CIT(A) passed the revision order, the impugned order dated 29.03.2022 had got obliterated and cancelled qua the second reassessment order dated 31.01.2024."

Core principles established include:

• A subsequent reassessment order passed afresh effaces and replaces the earlier assessment or reassessment order.
• Revisional jurisdiction under Section 263 of the Income-Tax Act can be exercised only over a subsisting and operative order.
• Once an earlier order is superseded by a later order, the earlier order ceases to exist in law and cannot be revised.

Final determinations on each issue:

• The revisional order passed by the PCIT under Section 263 against the reassessment order dated 29.03.2022 was without jurisdiction and illegal.
• The reassessment order dated 29.03.2022 was superseded by the subsequent reassessment order dated 30.01.2024, which was operative and accepted the returned income.
• The appeal filed by the assessee against the revisional order was allowed, setting aside the PCIT's order dated 31.03.2024.