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November 21, 2023

Revisionary proceedings cannot be started based on an AO proposal for revision because it is not authorized

Revisionary proceedings cannot be started based on an AO proposal for revision because it is not authorized

Fact and issue of the case

These two appeals by the assessee are directed against the common order dated 19-11-2018 passed by the Principal Commissioner of Income-tax (PCIT) u/s.263 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment years 2012-13 & 2013-14. Since a common issue is raised in these appeals, we are, therefore, proceeding to dispose them off by this consolidated order.

Briefly stated, the facts for the A.Y. 2012-13 are that the assessee filed its return declaring Nil income. The assessment was completed by making addition on account of certain transfer pricing adjustment. The ld. PCIT issued a show cause notice dated 29-05-2018 observing that the assessment proceedings for the A.Y. 2014-15 transpired that the assessee had received Government grants in the year under consideration also, which were taxable, but taken as capital receipt in the computation of total income. On the basis of a reference made by the AO, through proper channel, the ld. PCIT issued the above show cause notice and thereafter passed the order u/s.263 setting aside the assessment order and directing the AO to frame the assessment afresh after conducting enquiries and verification. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.

We have heard the rival submissions and gone through the relevant material on record. The ld. PCIT issued show cause notice dated 29-05-20 18, which is reproduced as under:

“Sub : Show cause notice u/s.263 – A. Yrs. 2012-13 and 2013- 14 – reg. Please refer to the above. 02. During the course of assessment proceedings of A.Yr.2014- 15, it was observed that you had credited an amount of Rs.405.68 crores and Rs.38.36 crores respectively as ‘Government Grant – Capital’ and ‘Government Grant – Revenue’ under the head ‘Other Income’ being an amortization of deferred income. In your statement of computation of income for the year, this amount has been deducted claiming to be capital in nature.

Observation of the court

Before parting with this appeal, we would like to record that this legal issue was raised by the ld. AR by means of an additional ground, which was strongly opposed by the ld. DR for The ld. DR pointed out that this issue was not taken up either before the ld. PCIT or in the original memorandum of appeal before the Tribunal and hence, the additional ground should not be admitted.

It is graphically overt from the above discussion that the assessee created the bedrock for challenging the revision through the additional ground, on the basis of the show cause notice issued by the ld. PCIT, which is part of the assessee’s paper book. Our decision of quashing the revision on this legal issue is based on such show cause notice. We are reminded of the judgment of the Hon’ble Supreme Court in National Thermal Power Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC), holding that: “the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item”. Answering the question posed before it in affirmative, their Lordships held that on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee and the Tribunal has jurisdiction to examine the same. Similar facts are prevailing in the case under consideration. The additional ground raises a pure question of law, for which no fresh investigation of facts is required. That is raison d’etre for our admitting the additional ground and then espousing it for consideration.

It is, therefore, ultimately held that the ld. Pr. CIT was not justified in invoking the revision jurisdiction. In view of our decision on the legal ground, there is no need to examine the issue on merits.

A.Y. 2013-14 :

Both the sides are in agreement that the facts and circumstances for the year under consideration are mutatis mutandis similar to the preceding year. In fact, a common show cause notice as well as a combined order for both the years came to be issued/passed. Following the view taken herein above, we set-aside the impugned order passed by the PCIT u’s.263 of the

In the result, both the appeals are allowed.

Order pronounced in the Open Court on 19th October, 2023.

Read the full order from here


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