2025 (6) TMI 883 - AT - Income Tax

Revision u/s 263 - as alleged no notice of hearing purportedly issued by PCIT - information suggesting accommodation entries receipt by assessee HELD THAT - AR submitted that the assessee has not received any notice of hearing purportedly issued by PCIT Central Ahmedabad on 16.03.2024 and an alert has been received on mobile only on 28.03.2024 (2 57 pm) and sought adjournment vide email dated 28.03.2024 (4 47 pm). The order u/s 263 has been passed on 29.03.2024. The facts reveal that the assessee was not in receipt of the notice issued. The Revenue could not bring any evidence contra. Hence the order passed by the PCIT u/s 263 of the Act is hereby treated as nullity. Appeal of the assessee is allowed.

Summary

Issues Presented and Considered

The core legal questions considered by the Appellate Tribunal (AT) in this matter are:

• Whether the Principal Commissioner of Income-Tax (PCIT) rightly invoked revisionary jurisdiction under Section 263 of the Income-tax Act, 1961 ("the Act") against the assessment order passed under Section 147 for AY 2014-15.
• Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of the revenue, thereby justifying revision under Section 263.
• Whether the PCIT correctly concluded that the AO failed to conduct necessary examination and verification regarding accommodation entries received by the assessee.
• Whether the PCIT complied with procedural fairness, including issuing proper notice and providing opportunity of hearing to the assessee before passing the revisionary order under Section 263.
• Whether the view taken by the AO in accepting the returned income without additions was a possible and reasonable view, thus immune from being disturbed under Section 263.

Issue-wise Detailed Analysis

1. Jurisdiction and conditions for invoking Section 263

The legal framework under Section 263 of the Act empowers the PCIT to revise an assessment order if it is found to be "erroneous" and "prejudicial to the interests of the revenue." Both conditions are mandatory and must be satisfied cumulatively. The Tribunal noted the well-established principle that mere difference of opinion or a possible view taken by the AO does not render an order erroneous. Revision under Section 263 is not intended to substitute the judgment of the AO with that of the PCIT unless the order is demonstrably erroneous and causes loss to the revenue.

The assessee contended that the AO had passed a reasoned order after analyzing all relevant details and therefore no error existed. The PCIT, however, invoked Section 263 on the ground that the AO accepted the returned income without making any additions despite information suggesting accommodation entries amounting to Rs. 72,00,000/- and payment of commission to entry providers.

The Tribunal emphasized that for Section 263 to be validly invoked, the PCIT must identify the specific error in the AO's order and demonstrate how it prejudices revenue. The PCIT's order lacked concrete findings on how the AO's acceptance of returned income without additions was erroneous or how such acceptance resulted in loss to revenue.

2. Examination of accommodation entries and related additions

The PCIT's show-cause notice alleged that the assessee had received accommodation entries from a particular group and paid commission in cash, which should have been added to income. The AO, however, did not make any additions and completed the assessment accepting the returned income.

The Tribunal observed that the PCIT's order did not disclose any inquiry or verification conducted to establish the nature and genuineness of the accommodation entries or the commission payments. The PCIT's conclusion that the AO's order was erroneous was based on prima facie information without any detailed investigation or examination of facts.

The assessee had also not appeared or filed any reply to the show-cause notice issued by the PCIT, which further limited the scope for the PCIT to pass a reasoned order. The Tribunal highlighted that the PCIT cannot act merely on suspicion or unverified information but must base revision on cogent material demonstrating error and prejudice.

3. Procedural compliance and opportunity of hearing

A significant procedural issue arose regarding the service of notice and opportunity of hearing before passing the Section 263 order. The assessee submitted that no proper notice of hearing was received and that an alert regarding the notice was received only after the PCIT had passed the revisionary order.

The Revenue failed to produce evidence to prove that the notice was duly served on the assessee. The Tribunal held that the failure to provide a proper opportunity of hearing vitiates the order passed under Section 263. The PCIT's order was therefore held to be a nullity on account of non-compliance with principles of natural justice.

4. Legitimacy of the AO's order as a possible view

The Tribunal reiterated the settled legal position that where the AO has taken a possible view supported by reasons, the PCIT cannot interfere under Section 263 merely because it disagrees with that view. The AO's acceptance of the returned income without additions, after reopening the assessment and considering the facts, was a possible view.

The PCIT's action in setting aside the assessment order without establishing an error or prejudice was therefore unwarranted. The Tribunal stressed that revisionary jurisdiction under Section 263 is not a substitute for appellate or revisionary remedies but a supervisory power to correct manifest errors.

5. Treatment of competing arguments and conclusion

The Tribunal carefully considered the assessee's grounds challenging the PCIT's order as illegal, without jurisdiction, and not supported by evidence or enquiry. It also noted the Revenue's reliance on information about accommodation entries and commission payments but the absence of any concrete findings or inquiry by the PCIT.

Given the failure of the PCIT to demonstrate error and prejudice, and the procedural lapse in not providing proper notice, the Tribunal concluded that the Section 263 order was without jurisdiction and liable to be quashed.

Significant Holdings

"In order to invoke Section 263 of the Income-tax Act, the revisional authority must find that the assessment order is erroneous and that such error is prejudicial to the interests of the revenue. Both conditions must be fulfilled cumulatively."

"The revisionary jurisdiction under Section 263 is not intended to substitute the opinion of the Assessing Officer with that of the Commissioner unless the order is found to be erroneous and prejudicial to revenue."

"Where the Assessing Officer has taken a possible view supported by reasons, the revisional authority cannot interfere under Section 263 merely because it disagrees with that view."

"Non-service of proper notice and denial of opportunity of hearing before passing an order under Section 263 vitiates the order and renders it a nullity."

"The revisional authority must conduct or rely on proper inquiry and verification before holding an assessment order erroneous and prejudicial to revenue."

Applying these principles, the Tribunal held that the PCIT's order under Section 263 was without jurisdiction, illegal, and a nullity due to procedural lapses and absence of any concrete finding of error or prejudice. The appeal was allowed, and the revisionary order was set aside.