PCIT fails to Assume Jurisdiction u/s 263 as Assessment order issued in Name of Non-Existent Entity: ITAT sets aside Order [Read Order]

The two-member bench of the Income Tax Appellate Tribunal ( ITAT ) in Mumbai set aside the order, ruling that the Principal Commissioner of Income Tax ( PCIT ) failed to assume jurisdiction under Section 263 because the assessment order was issued in the name of a non-existent entity, and consequently, the ITAT restored the Assessing Officer's ( AO ) order dated March 31, 2022, framed under Section 143(3) of the Income Tax Act, 1961.

The assessee Raghuleela Estates Private Limited appealed against the order dated March 26, 2024, issued under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT), Central, and Mumbai-3. The appeal pertained to the assessment year 2020-21. The core issue raised by the assessee was the PCIT's alleged error in assuming jurisdiction under Section 263 and subsequently deeming the assessment order dated March 31, 2022, framed under Section 143(3), as erroneous and prejudicial to the interests of the revenue.

The facts of the case reveal that the assessment order in question was issued in the name of Wadhwa & Associates Realtors Pvt. Ltd. However, the assessee had already amalgamated with Raghuleela Estates Pvt. Ltd., as per an order dated February 11, 2021, from the National Company Law Tribunal ( NCLT ), Mumbai, with the effective date of amalgamation being December 17, 2021. These facts were mentioned in the body of the assessment order. Consequently, the tribunal noted that the assessment order was framed in the name of a non-existent entity, leading to the conclusion that the PCIT erroneously assumed jurisdiction under Section 263 of the Income Tax Act.

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The PCIT's assumption of jurisdiction was based on the assessment proceedings of Raghuleela Estates Pvt. Ltd. for the assessment year 2020-21. During these proceedings, inquiries were made regarding loans claimed by Raghuleela Estates Pvt. Ltd. against house properties and the related interest claimed under Section 24B of the Act. The Assessing Officer ( AO ) had disallowed the interest expenditure for the period from October 1, 2019, to March 31, 2020, due to the inability of Raghuleela Estates Pvt. Ltd. to precisely correlate the loans used for acquiring or repairing the properties. The PCIT aimed to extend this disallowance to the period before October 1, 2019, in the case of Wadhwa & Associates Realtors Pvt. Ltd.

However, the tribunal referred to an order by the CIT(A)-53, Mumbai, dated August 5, 2024, in the case of Raghuleela Estates Pvt. Ltd. for the same assessment year, where the CIT(A) allowed the claim, stating that there was no evidence of funds being diverted for non-business or personal purposes. The tribunal noted that since the basis for the PCIT's action had been removed, the entire order under Section 263 must also be set aside. Furthermore, the tribunal observed that the PCIT's jurisdiction was based on a proposal dated February 14, 2024, submitted by the AO and forwarded by the Additional Commissioner of Income Tax, Central Range-5, Mumbai, indicating that the PCIT did not apply independent judgment.

The tribunal drew support from the Supreme Court's decision in Malabar Industrial Co. Ltd., which clarified that the Commissioner must be satisfied that the order sought to be revised is both erroneous and prejudicial to the interests of the Revenue. If either condition is absent, Section 263 cannot be invoked.

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The bench has no hesitation in holding that the assessment order was framed in the name of a non-existing assessee, and the PCIT grossly erred in assuming jurisdiction under Section 263 of the Income Tax Act in the case of a non-existent entity.

Considering these facts and judicial precedents, the tribunal, comprising Judicial Member Sandeep Singh Karhail and Accountant Member Narendra Kumar Billaiyya, set aside the PCIT's order dated March 26, 2024, and restored the AO's order dated March 31, 2022, framed under Section 143(3) of the Income Tax Act. Consequently, the assessee's appeal was allowed.

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