2025 (5) TMI 697 - AT - Income Tax

Validity of revision order passed u/s 263 - denial of principles of natural justice by passing the order ex parte without affording adequate opportunity was provided to the assessee - HELD THAT - Even though the assessee had filed the reply online however the order has been passed ex parte. Therefore in the interest of justice the order of the CIT is hereby set aside with the direction to afford sufficient opportunity of being heard to the assessee and consider the submissions of the assessee already filed online and any additional submissions which may be filed by the assessee and thereafter pass the order u/s 263 afresh. Accordingly the grounds taken by the assessee in his appeal are allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961 (the Act), setting aside the assessment order and directing a fresh assessment, was valid and sustainable in law.
• Whether the PCIT violated the principles of natural justice by passing the order ex parte without affording the assessee a proper and meaningful opportunity of being heard.
• Whether the PCIT failed to consider the submissions and evidences filed by the assessee before passing the impugned order under Section 263.
• Whether the assessment order passed under Section 147 read with Section 144 and Section 144B of the Act was erroneous or prejudicial to the interests of the Revenue, justifying revision under Section 263.
• Whether the delay in filing the appeal before the Tribunal was liable to be condoned.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the order under Section 263 of the Act

Relevant legal framework and precedents: Section 263 empowers the Commissioner to revise any order passed by the Assessing Officer (AO) if the order is erroneous in so far as it is prejudicial to the interests of the Revenue. However, this power is to be exercised sparingly and only when the assessment order is found to be erroneous and prejudicial. The Commissioner must follow the principles of natural justice and provide a reasonable opportunity of being heard before setting aside the order.

Precedents cited by the assessee include:

• Tin Box Company v. CIT: An order passed without affording a reasonable opportunity of being heard is liable to be set aside.
• Vijay Gupta v. CIT: Ex parte orders under Section 263 without considering assessee's submissions are unsustainable.
• PCIT v. Delhi Airport Metro Express Pvt. Ltd.: Orders violating natural justice are bad in law.
• Rampiyari Khemka v. CIT: Substance of enquiry results must be disclosed to the assessee for rebuttal.
• CIT v. Ramendra Nath Ghosh and CIT v. National Taj Traders: Proper service of notice and adherence to natural justice are mandatory.
• Sona Construction v. ITO: Ex parte orders under Section 263 should be set aside if opportunity to produce materials was not given.
• Chirag P. Thummar v. PCIT: Non-speaking ex parte orders under Section 263 are liable to be set aside.

Court's interpretation and reasoning: The Tribunal noted that the PCIT passed the order under Section 263 ex parte, despite the assessee having filed detailed submissions and evidences online before the due date. The order was passed on 27.02.2023, while the assessee's reply was filed on 21.02.2024, which was within the stipulated time for response. The Tribunal observed that the PCIT did not consider these submissions before passing the order.

Key evidence and findings: The assessee filed a reply online, acknowledged by the Department, and also submitted VAT returns for three months. The PCIT's order itself recorded the due date for reply as 19.02.2023. The assessee's written submissions and evidences were not taken into account.

Application of law to facts: The Tribunal held that passing an ex parte order under Section 263 without considering the assessee's submissions violates the principles of natural justice and is contrary to settled legal precedents. The PCIT's action was therefore not sustainable.

Treatment of competing arguments: The Department contended that adequate opportunity was given to the assessee, but the Tribunal found that the order was passed without considering the submissions, effectively making it ex parte. The Tribunal relied on established case law to emphasize the requirement of a meaningful hearing.

Conclusions: The order under Section 263 was quashed for being ex parte and violative of natural justice. The matter was remanded to the PCIT with directions to afford proper opportunity and consider all submissions before passing a fresh order.

Issue 2: Whether the assessment order was erroneous or prejudicial to the interests of Revenue

Relevant legal framework and precedents: Section 263 can be invoked only if the assessment order is erroneous and prejudicial to Revenue. The AO's assessment under Sections 147, 144, and 144B was challenged on the ground that the AO did not make proper enquiries and verifications regarding cash deposits of Rs. 3,40,83,000/- and additions under Section 68.

Court's interpretation and reasoning: The Tribunal did not delve deeply into the merits of the assessment order because the primary issue was the violation of natural justice in the revision proceedings. The PCIT had directed a fresh assessment with proper enquiry and opportunity to the assessee.

Key evidence and findings: The AO had made additions under Section 68 but was alleged to have failed in proper enquiry and verification. The PCIT's order questioned the adequacy of the AO's investigation.

Application of law to facts: Since the PCIT's order was set aside on procedural grounds, the question of whether the assessment was erroneous or prejudicial is to be examined afresh by the PCIT after affording opportunity to the assessee.

Treatment of competing arguments: The assessee argued that the AO had made all necessary enquiries as per law. The PCIT found otherwise. The Tribunal did not resolve this dispute but remanded the matter for proper consideration.

Conclusions: The Tribunal directed fresh consideration of the assessment order under Section 263 after hearing the assessee, without expressing any opinion on the merits.

Issue 3: Condonation of delay in filing appeal

Relevant legal framework: Appeals to the Tribunal must be filed within prescribed time limits. Delay can be condoned if sufficient cause is shown.

Court's interpretation and reasoning: The assessee's delay of 103 days was due to attempts to exhaust legal remedies, including filing an application under Section 154 to recall the ex parte order, which was rejected only on 02.08.2024. The Tribunal found this to be a reasonable cause.

Conclusions: The Tribunal condoned the delay and admitted the appeal for adjudication.

Issue 4: Adequacy of opportunity of hearing in revision proceedings

Relevant legal framework and precedents: Principles of natural justice require that no order adverse to a party be passed without giving a meaningful opportunity to present its case. The Supreme Court and various High Courts have consistently held that ex parte orders under Section 263 are not sustainable.

Court's interpretation and reasoning: The Tribunal observed that despite the issuance of show cause notices and multiple opportunities, the PCIT passed the order without considering the assessee's submissions filed online. This was held to be a violation of natural justice.

Conclusions: The Tribunal set aside the order and directed the PCIT to pass a fresh order after providing adequate opportunity to the assessee.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"We find that even though the assessee had filed the reply online, however, the order has been passed ex parte. Therefore, in the interest of justice, the order of the ld. Pr. CIT is hereby set aside with the direction to afford sufficient opportunity of being heard to the assessee and consider the submissions of the assessee already filed online and any additional submissions which may be filed by the assessee and thereafter pass the order u/s 263 of the Act afresh."

Core principles established include:

• An order under Section 263 passed without considering the assessee's submissions and without affording a meaningful opportunity of hearing is ex parte and violative of natural justice.
• The power under Section 263 should be exercised only after proper enquiry and after hearing the assessee, especially when the assessment order is challenged as being erroneous and prejudicial.
• Where an order under Section 263 is passed ex parte, the Tribunal will set aside such order and remit the matter for fresh consideration with due opportunity.
• Delay in filing appeal can be condoned if sufficient cause is shown, such as attempts to exhaust statutory remedies.

Final determinations on each issue were that the appeal was allowed for statistical purposes by setting aside the PCIT's order under Section 263 and directing fresh proceedings after affording opportunity to the assessee. The Tribunal did not express any opinion on the merits of the assessment or the revision but emphasized adherence to procedural fairness and natural justice.