Because the initial reassessment order was passed improperly, subsequent revisional orders frequently aren’t valid

Fact and issue of the case

The present appeals filed by the Revenue are directed against the common order dated 18th August, 2022 passed by the Income Tax Appellate Tribunal (ITAT), Cuttack Bench, Cuttack in ITA Nos.72-75/CTK/2021 filed by the Assessees for the Assessment Years (AYs) 2013-14.

By the impugned order, the ITAT allowed the aforementioned appeals of the Assessees thereby setting aside an order dated 23rd March, 2021 passed by the Principal Commissioner of Income Tax (PCIT), Sambalpur under Section 263 of the Income Tax Act, 1961 (Act) holding the original assessment order dated 28th December, 2018 of the Assessing Officer (AO) to be erroneous and prejudicial to the interests of the Revenue.

The background facts are that as far as the Assessee Badal Prakash Jindal, HUF is concerned, the said Assessee filed its return of income for the AY 2013-14 on 25th November, 2013 after claiming Long Term Capital Gains (LTCG) under Section 10(38) of the Act. The AO, i.e., the Income Tax Officer, Bargarh Ward, Bargarh gathered information that the Assessee had shown the LTCG out of the share transaction of a Kolkata based company, M/s. Tuni Textile Mills Ltd. (TTML) and that the price of such shares had increased by more than 768% from the cost of acquisition within a span of a little more than one year.

Alleging that the Assessee had taken an accommodation entry in the form of bogus LTCG and that TTML was a sham company, the AO reopened the assessment by issuing notice dated 30th March, 2018 to the Assessee under Section 148 of the Act.

In response thereto, the Assessee filed a return of income this time offering the net consideration from the sale of shares for taxation under the head Short-Term Capital Gains (STCG) in lieu of LTCG shown in the original return. On this basis, the AO passed an assessment order under Section 143 (3) read with Section 147 of the Act on 28th December, 2018 accepting the revised income as disclosed in the return and accordingly raising a demand. The Assessee accepted the above assessment order by not challenging it further in appeal.

In the appeal, the ITAT took up for consideration one ground, viz., whether the reassessment proceedings were themselves invalid since the reasons recorded in the file for reopening and the reasons supplied to the Assessee were different. In response, it was sought to be contended on behalf of the Revenue before the ITAT that the validity of the re-assessment order cannot be challenged by the Assessee in an appeal filed by it against the revisional order under Section 263 of the Act.

Following the decision of the Kolkata Bench of the ITAT dated 5th April, 2017 in ITA Nos.764-766/Kol/2014 (Classic Flour & Food Processing Pvt. Ltd. v. CIT) and other orders of the coordinated benches of both Kolkata and Delhi, the ITAT negatived the above plea of the Revenue.

Observation by the court

This Court is entirely in agreement with the above conclusion of the ITAT which is based on the decisions of the High Courts and the Supreme Court of India.

Indeed, if the original re-assessment order itself was not validly passed, the subsequent revisional order by the PCIT was required to be held invalid.

No substantial question of law arises from the impugned order of the ITAT. The Court is therefore not inclined to frame the questions of law as urged by the Revenue in the present appeals. It will be noted here that in Para-19 of the impugned order of the ITAT, the Revenue has not disputed that the connected appeals raised similar issues.

The appeals are accordingly dismissed in the above terms.