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2025 (5) TMI 968 - AT - Income TaxRevision u/s 263 as barred by limitation - HELD THAT - Assessment was framed u/s 143(3) read with section 263 of the Act vide order dated 06.03.2023 in which it was not the issue raised by the PCIT in the first round. In fact the issue was with regard to non-deduction of TDS u/s 194C of the Act on freight expenses. Therefore the said order is neither erroneous nor prejudicial to the interest of the Revenue. We note that the ld. AO after taking into consideration all the evidences and details furnished by the assessee recorded a finding that the provisions of Section 194C of the Act were not applicable. Therefore the exercise of jurisdiction u/s 263 of the Act by the ld. PCIT vide order dated 27.12.2024 is bad in law. PCIT could have revised the assessment framed u/s 143(3) of the Act dated 05.12.2019 but the same is barred by limitation and therefore no revision could have been made of the original assessment also. We are inclined to quash the revisionary order passed u/s 263. Appeal of the assessee is allowed.
The core legal questions considered in this judgment revolve around the validity and limitation of the revisionary jurisdiction exercised under Section 263 of the Income-tax Act, 1961. Specifically, the issues are:
Issue-wise Detailed Analysis 1. Validity and Limitation of Revisionary Jurisdiction under Section 263 The legal framework governing revisionary jurisdiction under Section 263(1) of the Income-tax Act empowers the Commissioner to revise any order passed by an Assessing Officer if it is found to be erroneous and prejudicial to the interests of the Revenue. However, Section 263(2) imposes a strict limitation period, mandating that no order under Section 263(1) shall be passed after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. Precedents cited include the Supreme Court decision in CIT vs. Alagendran Finance Limited (2007) and the Bombay High Court decision in CIT vs. ICICI Bank Limited (2012), which reinforce the inviolability of this limitation period. The Court observed that the original assessment order was passed on 05.12.2019. The PCIT's revisionary order dated 27.12.2024 was thus beyond the two-year limitation period prescribed under Section 263(2) when seeking to revise the original assessment. Consequently, the exercise of jurisdiction was invalid and barred by limitation. 2. Applicability of Section 194C on Carriage Inward Expenses and Non-deduction of TDS The PCIT initially invoked revisionary jurisdiction on the ground that the assessee had debited Rs. 1,23,45,237/- as carriage inward expenses without deducting TDS under Section 194C. The PCIT contended this non-deduction resulted in underassessment of income by Rs. 37,03,571/-. During reassessment proceedings, the Assessing Officer (AO) conducted a detailed inquiry, including verification of PAN details of the transporters and the number of goods carriers owned by them. The AO found that none of the transporters owned more than 10 goods carriers, thereby rendering Section 194C(6) inapplicable. Consequently, the AO accepted the returned income and held that TDS provisions under Section 194C did not apply. The Court noted that the order dated 06.03.2023, framed under Section 143(3) read with Section 263, was not erroneous or prejudicial to Revenue's interest as it was based on detailed factual findings and proper application of law by the AO. The PCIT's attempt to revise this order was therefore without legal basis. 3. Disallowance of Cash Payments under Section 40A(3) The PCIT further observed that Rs. 5,70,386/- was paid in cash to transporters in amounts exceeding Rs. 35,000/- in a single day, contravening Section 40A(3) of the Act, which restricts cash payments beyond specified limits to claim expenses as deductible. On this basis, the PCIT held the order dated 06.03.2023 erroneous and prejudicial and passed a revisionary order directing the AO to disallow such expenses. The Court found that this issue was not raised in the original assessment or in the first revisionary order but was introduced only in the subsequent revisionary order dated 27.12.2024. Since the PCIT's jurisdiction to revise the assessment is limited to orders passed within the prescribed limitation period, and since the original assessment was framed on 05.12.2019, the revisionary order on this new ground was barred by limitation. Moreover, the AO had accepted the returned income after verifying the facts and applying the provisions of the Act appropriately. The Court held that the PCIT could not validly invoke revisionary jurisdiction on the fresh order dated 06.03.2023, which was itself a revision under Section 263. 4. Treatment of Competing Arguments The assessee's representative argued vehemently that the PCIT's order dated 27.12.2024 was hopelessly barred by limitation under Section 263(2) and was invalid as it sought to revise an order passed beyond the two-year period. The assessee further contended that the issue of cash payments exceeding Rs. 35,000/- was not part of the original assessment or the first revision, and hence could not be introduced in a belated revision. The Revenue's representative contended that the PCIT revised the assessment framed on 06.03.2023 and therefore the limitation under Section 263(2) did not apply. The Court rejected the Revenue's contention, holding that the order dated 06.03.2023 was itself a revisionary order passed under Section 263 and not a fresh assessment. The limitation period for revision under Section 263 runs from the date of the original assessment order, not from subsequent revisionary orders. Conclusions The Court concluded that the PCIT's order dated 27.12.2024 revising the assessment under Section 263 was barred by limitation and hence invalid. The revisionary jurisdiction could not be exercised beyond two years from the end of the financial year in which the original assessment order was passed. The order dated 06.03.2023 was neither erroneous nor prejudicial to the interest of Revenue, and the issues raised therein were properly adjudicated by the AO. Significant Holdings The Court held:
This establishes the core principle that the limitation period under Section 263(2) is strictly applicable and cannot be circumvented by revising subsequent orders passed under the same provision. Further, the Court emphasized that detailed factual findings by the AO, including verification of PAN details and applicability of Section 194C, are binding unless shown to be erroneous and prejudicial, which was not established in this case. The final determination was to quash the revisionary order dated 27.12.2024 and allow the assessee's appeal, thereby upholding the assessment order dated 06.03.2023 and the original assessment dated 05.12.2019.
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