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2025 (5) TMI 1661 - AT - Income TaxRevision u/s 263 - as per CIT AO has framed the re-assessment order without making proper verification of source of amount credited to the account of the assessee - AO has not examined the issue of the equity shares of face value of Rs. 10/- at a premium of Rs. 490/- i.e. excess premium and is in violation of provisions of sec. 56(2)(viib) HELD THAT - AO did not make addition in respect of item of addition which was subject matter in the reason recorded u/s. 148(2) and therefore once the item which is subject matter of reason recorded is not added by the AO no other addition could be made in the assessment framed u/s. 147/143(3) of the Act. Even therefore the assessment framed u/s. 147/143(3) was neither erroneous nor prejudicial to the interest of the revenue. Invocation of jurisdiction u/s.263 to the other assessment u/s 143(1) is hopelessly barred by limitation and the same is beyond the time limit provided u/s. 263(2) as has been held in Alegendran Finance Ltd. 2007 (7) TMI 304 - SUPREME COURT Even the assessment proposed by CIT in the show cause notice issued u/s. 263 of the Act was with respect to receipt of excess share premium by issuing equity shares in violation of provisions of sec. 56(2)(viib) which was not applicable to the instant assessment year and was brought on the statute book by the Finance Act 2012 w.e.f. 01.04.2013 meaning thereby that the same is applicable from AY 2013-14 onwards. Every basis of initiation of revisionary proceeding is invalid and against the provisions of the Act. Consequently we quash the revisionary proceeding initiated by the Ld. Pr. CIT framed u/s. 263 - Decided in favour of assessee.
Issues Presented and Considered
The core legal questions considered by the Appellate Tribunal (AT) in this appeal are:
Issue-wise Detailed Analysis 1. Validity of Revisionary Proceedings under Section 263 vis-`a-vis Limitation under Section 263(2) Legal Framework and Precedents: Section 263(2) of the Act prescribes a limitation period of one year from the date of the assessment order within which the Pr. CIT can revise the order if it is found to be erroneous and prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the decision relied upon by the appellant, PCIT vs. Alegendran Finance Ltd., has held that the revisionary jurisdiction under section 263 is subject to strict limitation and cannot be exercised beyond the prescribed period. Court's Interpretation and Reasoning: The Tribunal noted that the Pr. CIT sought to revise the assessment order dated 27.08.2021 by order dated 20.02.2024, which is well beyond the one-year period prescribed under section 263(2). The Pr. CIT's revisionary order was therefore time barred and invalid. The Tribunal emphasized that the limitation period is mandatory and cannot be extended or waived. Application of Law to Facts: Since the revisionary order dated 20.02.2024 was passed more than one year after the assessment order dated 27.08.2021, the exercise of jurisdiction by the Pr. CIT was barred by limitation. Conclusion: The revisionary proceedings initiated by the Pr. CIT under section 263 are invalid as barred by limitation under section 263(2) of the Act. 2. Whether the Assessment Order dated 27.08.2021 is Erroneous or Prejudicial to the Interest of Revenue Legal Framework and Precedents: Section 263 can be invoked only if the original order is found to be erroneous and prejudicial to the interest of the revenue. The Supreme Court in Malabar Industrial Co. Ltd. vs. CIT has clarified that both conditions must be satisfied simultaneously and that mere error or mere prejudice is insufficient to invoke section 263. Court's Interpretation and Reasoning: The Tribunal found that the assessment order dated 27.08.2021 was passed after the AO had made detailed enquiries and verification regarding the source of credit of Rs. 2,85,46,000/- in the assessee's bank account, which was the subject matter of the reopening under section 147. The AO accepted the returned income after due verification. Therefore, the order was neither erroneous nor prejudicial to the interest of the revenue. Key Evidence and Findings: The AO had conducted reassessment proceedings pursuant to the earlier revisionary order dated 17.03.2020, examined the relevant evidence, and accepted the returned income of the assessee. No addition was made in respect of the accommodation entries which were the basis for reopening. Treatment of Competing Arguments: The Pr. CIT argued that the AO failed to examine the issue of excess share premium, which made the order erroneous and prejudicial. The Tribunal rejected this argument as the issue of excess share premium was not part of the original reasons recorded for reopening and was not examined during the reassessment proceedings. Application of Law to Facts: Since the AO had fully examined the issue for which reassessment was initiated and accepted the returned income, the assessment order was valid. The Pr. CIT could not invoke section 263 on a new issue not forming part of the original reasons for reopening. Conclusion: The assessment order dated 27.08.2021 is neither erroneous nor prejudicial to the interest of the revenue, and the revisionary jurisdiction under section 263 cannot be invoked on this ground. 3. Applicability of Section 56(2)(viib) of the Act to AY 2010-11 Legal Framework: Section 56(2)(viib), which deals with addition of excess consideration received on issue of shares over fair market value, was introduced by the Finance Act, 2012 with effect from 01.04.2013 and is applicable only from AY 2013-14 onwards. Court's Interpretation and Reasoning: The Tribunal noted that the assessment year under consideration is AY 2010-11, which predates the insertion of section 56(2)(viib). Therefore, the provisions invoked by the Pr. CIT to add share premium received in excess of fair market value are not applicable to the instant case. Application of Law to Facts: Since section 56(2)(viib) was not in force during AY 2010-11, the Pr. CIT's reliance on this provision to invoke revisionary jurisdiction is legally untenable. Conclusion: The invocation of section 263 on the ground of non-compliance with section 56(2)(viib) is invalid for AY 2010-11. 4. Scope of Revisionary Jurisdiction under Section 263 vis-`a-vis Issues Not Forming Part of Reasons Recorded for Reopening Legal Framework: The scope of reassessment under section 147 and revision under section 263 is limited to the issues specified in the reasons recorded for reopening the assessment. The AO cannot make additions or changes unrelated to the reasons recorded, and the Pr. CIT cannot revise an order on grounds not forming part of the original assessment or reassessment. Court's Interpretation and Reasoning: The Tribunal observed that the original reopening was based solely on the issue of accommodation entries of Rs. 2,85,46,000/-. The issue of excess share premium was not part of the reasons recorded for reopening or reassessment. Therefore, the Pr. CIT's revisionary order setting aside the assessment on this new ground was beyond jurisdiction and invalid. Application of Law to Facts: The AO had fully examined the issue for which reassessment was initiated and accepted the returned income. The Pr. CIT could not invoke section 263 to raise a new issue not considered or examined during reassessment. Conclusion: The revisionary order passed by the Pr. CIT on the ground of excess share premium is beyond the scope of section 263 and is invalid. 5. Validity of Revisionary Jurisdiction Against Assessment under Section 143(1) Legal Framework: Section 263(2) prescribes time limits for revision of orders passed under various sections, including section 143(1). The limitation period is one year from the date of the order sought to be revised. Court's Interpretation and Reasoning: The Tribunal noted that if the Pr. CIT intended to revise the original assessment order passed under section 143(1), such revision would be barred by limitation as a considerable time had elapsed since the passing of the order. Application of Law to Facts: The Pr. CIT's attempt to invoke revisionary jurisdiction against the order under section 143(1) is time barred and therefore invalid. Conclusion: The revisionary jurisdiction under section 263 cannot be exercised against the section 143(1) order beyond the prescribed limitation period. Significant Holdings "In order to invoke the jurisdiction u/s. 263 of the Act the twin conditions as envisaged u/s. 263 of the Act have to be satisfied simultaneously otherwise the jurisdiction u/s. 263 is not available. It is not enough if one of the two conditions is satisfied." "The revisionary proceedings initiated by the Ld. Pr. CIT under section 263 are invalid as barred by limitation under section 263(2) of the Act." "The issue of receipt of excess share premium in violation of section 56(2)(viib) of the Act is not applicable to AY 2010-11 as the said provision was introduced with effect from AY 2013-14." "The revisionary jurisdiction under section 263 cannot be invoked on grounds not forming part of the reasons recorded for reopening the assessment." "The assessment order dated 27.08.2021 framed under sections 263/147/143(3) is neither erroneous nor prejudicial to the interest of the revenue and, therefore, the revisionary order passed by the Ld. Pr. CIT setting aside the said assessment order is invalid and nullity." "The revisionary jurisdiction under section 263 cannot be exercised against an order passed under section 143(1) beyond the limitation period prescribed under section 263(2)."
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