Relief to Aishwarya Rai Bachchan: Revisional Jurisdiction cannot be invoked on ground of an Invalid Re-Assessment by AO, says ITAT [Read Order]

In a Relief to Aishwarya Rai Bachchan, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the Commissioner of Income Tax cannot invoke his revisional jurisdiction under section 263 of the Income Tax Act, 1961 merely on ground of an invalid re-assessment order passed by the Assessing Officer.

In the instant case, the Assessing Officer (AO) had reopened assessment for the relevant years on the ground that the Assessee had failed to disclose true and full facts necessary for the purpose of assessment and thereby issued a notice under Section 148 of the Income Tax Act, 1961. The re-assessment proceedings against the Assessee were completed in 2018, with the AO accepting the return of income of the Assessee. The re-assessment was sought to be revised by the Principal Commissioner of Income Tax (PCIT) against which the Assessee filed an appeal before the ITAT.

The department contended that the assessment was sought to be revised by the PCIT on the ground that the AO had wrongly not disallowed the deduction of ‘investment transaction fees’, prima facie capital in nature, while computing the business income of the Assessee.

The Bench of ITAT Mumbai, consisting of members Kuldip Singh (Judicial Member) and M. Balaganesh (Accountant Member), held that when an assessment framed by the Assessing Officer is invalid in law, the said invalid order cannot be the subject matter of revision under Section 263 of the Income Tax Act ,1961.

Section 263 of the Act gives power to specified income tax authorities to revise orders passed under the Act if they consider that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue.

The Tribunal observed that the Commissioner of Income Tax (Appeal) (CIT (A)) in its order had already adjudicated upon the disallowance of the ‘investment transaction fees’ under Section 14A of the Act and the very same transaction was sought to be considered and added by the PCIT in his revision proceedings under Section 263 of the Act. The court held that the order passed by the CIT (A) had become final since no appeal was preferred by the Assessee. Also, the appeal filed by the revenue authorities against the order of CIT (A) was dismissed by the ITAT. The court observed that as per the provisions of Clause (c) of Explanation 1 to Section 263(1) of the Act, a matter which has already been considered and decided by the CIT (A) cannot be the subject matter of revision by the PCIT under Section 263 of the Act.

Quashing the Revisional order, the Tribunal held that “When an assessment framed by the ld. AO is unsustainable in the eyes of law, the said invalid and illegal order cannot be subject matter of section 263 proceedings. On this count also, the revision order passed by the ld. PCIT u/s.263 of the Act deserves to be quashed.”

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