The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that the Principal Commissioner of Income Tax (PCIT) cannot invoke powers under Section 263 to revise a reassessment order on issues that were never examined during the reassessment proceedings if such revision is beyond the statutory limitation period.
The bench of Satbeer Singh Godara (Judicial Member) and Naveen Chandra (Accountant Member) quashed the revision order after concluding that it was barred by limitation under Section 263(2) of the Income Tax Act, 1961.
The case related to Assessment Year (AY) 2012-13. The taxpayer had originally filed the income tax return declaring total income of ₹2.83 lakh, which was processed under Section 143(1).
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Subsequently, based on information received from the Investigation Wing, the Assessing Officer (AO) reopened the assessment under Section 147. The allegation was that the taxpayer had allegedly provided accommodation entries amounting to ₹65 lakh during Financial Year 2011-12 and had received cash in return.
During reassessment proceedings, the AO made an addition of ₹65 lakh under Section 68 of the Income Tax Act and completed the reassessment under Sections 147 read with 143(3).
After completion of the reassessment, the Principal Commissioner invoked revisionary jurisdiction under Section 263.
The PCIT held that the reassessment order was erroneous and prejudicial to the interests of the Revenue because the Assessing Officer had allegedly failed to examine applicability of Section 50C in relation to the sale of immovable property, stamp duty valuation of the property, and cash deposits aggregating to ₹7.25 lakh in two bank accounts.
Accordingly, the PCIT set aside the reassessment order and directed the Assessing Officer to conduct fresh enquiries on these issues.
The taxpayer challenged the revision order primarily on the ground of limitation.
It was argued that the reassessment proceedings were confined only to the issue of alleged accommodation entries of ₹65 lakh; the issues relating to Section 50C and bank deposits were never part of the reassessment proceedings; therefore, for computing limitation under Section 263(2), the relevant date should be the original assessment under Section 143(1), and not the reassessment order.
The taxpayer relied upon several judicial precedents, including the Supreme Court judgments in CIT v. Industrial Development Bank of India Ltd. and CIT v. Alagendran Finance Ltd.
After examining the facts, the ITAT observed that the reassessment proceedings had been initiated exclusively to examine the alleged accommodation entries of ₹65 lakh.
The Tribunal noted that the revision proceedings initiated by the PCIT related to completely different issues—namely, valuation of immovable property under Section 50C and cash deposits—which were never the subject matter of reassessment.
Relying upon the Supreme Court’s decisions in Industrial Development Bank of India Ltd. and Alagendran Finance Ltd., the Tribunal reiterated the settled legal position that where the subject matter of revision is different from the subject matter of reassessment, limitation for invoking Section 263 must be computed from the original assessment order and not from the reassessment order.
The Tribunal referred to the Supreme Court’s principle that reopening of an assessment does not reopen every aspect of the original assessment.
Only those issues that form part of the reassessment can extend the limitation period for revision. If the Commissioner seeks to revise entirely different issues, the limitation continues to run from the original assessment order.
Applying this principle, the Tribunal held that since the reassessment dealt solely with accommodation entries, the PCIT could not rely upon the reassessment order to extend the limitation period for examining unrelated issues under Section 50C or bank deposits.
The Tribunal observed that the original return had been processed under Section 143(1) on 24 November 2012.
Since the revision order under Section 263 was passed only on 28 March 2023—well beyond two years from the end of the financial year in which the original assessment order was passed—it was clearly barred by limitation under Section 263(2).
Consequently, the Tribunal quashed the revision order as unsustainable in law and allowed the taxpayer’s appeal.
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