S. 263 of Income Tax Act cannot be initiated based on “Borrowed Satisfaction" ITAT [Read Order]

In a recent ruling, the Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) held that Section 263 of the Income Tax Act, 1961, cannot be initiated based on “borrowed satisfaction".

This case deals with nine appeals filed by different assessees against the order passed by the Principal Commissioner of Income Tax ( PCIT ) under Section 263 of the Income Tax Act.

As there are 9 different assessees and various assessment years, the bench has taken the case of one particular assessee, Manojbhai Padaliya, who has appealed against the order of PCIT for the AY 2013-14 as the lead assessment year, and this decision would be binding on all the 9 above mentioned appeals.

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In this case, the assessee had filed his income tax returns ( ITR ) for the AY 2013-14 and declared his total income at Rs. 3,31,310. Although the case of the assessee was reopened, no additions were made by the assessing officer ( AO ).

The PCIT observed that in AY 2013-14, another assessee, Shri Mahendrakumar S. Mathukiya, had received a similar amount of Rs. 1,50,95,174 from Mr. V Nitin and M/s Kiran Gems Pvt. Ltd., which was added under Section 68 of the Income Tax Act in reassessment. The PCIT observed that no such addition was made in the present assessee’s case for receipts from the same parties, and thus the PCIT reached the conclusion that the assessment order was erroneous and prejudicial to Revenue.

In response to the notice under Section 263, the assessee argued that the issue had already been examined during reassessment proceedings and that the AO had taken a plausible legal view.

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The PCIT, who was not satisfied by the reply furnished by the assessee, directed the AO to re-verify the facts and, if necessary, take appropriate action as per law.

The counsel’s assessee contended that the PCIT has not shown how the assessment was erroneous.

The ITAT observed that the order passed by the PCIT in Section 263 did not provide specific findings or satisfaction on how the assessment order was erroneous and prejudicial to Revenue. The notice under Section 263 of the Income Tax statute was just based on additions made in another case of Mahendrakumar Shantilal Mathukiya for similar payments. The bench held that invoking Section 263 requires independent findings in the assessee’s own case and cannot be based on “borrowed satisfaction” from third-party assessments.

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The ITAT, comprising Narendra Prasad Sinha ( Judicial Member ) and Siddhartha Nautiyal ( Judicial member ) set aside the proceedings initiated by the PCIT under Section 263 of the Income Tax Act.

In conclusion, all the appeals filed by the 9 different assessees were allowed by the ITAT.

To Read the full text of the Order CLICK HERE

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