Relief to LIC Mutual Fund: ITAT Sets Aside PCIT's Section 263 Order for Non-speaking Order [Read Order]

In a ruling in favour of LIC Mutual Fund, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) set aside the Principal Commissioner of Income Tax (PCIT)'s revision order under Section 263 of the Income Tax Act, 1961 holding it a "non-speaking order" that failed to address the assessee's detailed rebuttals.

The PCIT had revised the assessment order passed under Section 143(3), citing four grounds: disproportionate advertisement expenses, depreciation on Right-of-Use (ROU) assets, unverified dividend income/share gains, and disclosure of mutual fund fees on net (vs. gross) basis.

LIC Mutual Fund, the assessee filed a return declaring NIL income, claiming a substantial refund. The return was selected for scrutiny to verify whether the taxable income has been disclosed correctly by the assessee as the assessee has claimed substantial amount of refund in its return of income.

Notices were issued under section 143(2) and 142(1) of the Act and after calling for necessary information and documentation, the AO passed the assessment order u/s. 143(3) r.w.s. 144B of the Act with a finding that the refund claim is genuine in nature and no adverse inference is drawn in this case and the returned income of NIL was accepted. The Assessing Officer (AO) accepted the refund claim after scrutiny. The PCIT issued a show-cause notice under Section 263, alleging the AO failed to inquire into the four issues.

The assessee filed detailed submissions (100+ pages) refuting each ground, but the PCIT mechanically remanded the matter to the AO without recording findings on the rebuttals. The PCIT argued that the AO's order was "erroneous and prejudicial" due to lack of inquiry, citing precedents Malabar Industrial Co. Ltd., KEC International Ltd..

The tribunal observed that the PCIT merely reiterated the show-cause notice without analyzing the assessee's rebuttals or recording findings on why they were unacceptable. Section 263 requires the PCIT to conduct an inquiry, provide a speaking order, and establish both "erroneous" and "prejudicial to revenue" criteria CIT vs. Vikas Polymers.

The has tried to demonstrate that some of the issued raised by the PCIT are non-existent in assessee’s case such as matter relating to accounting for dividends and gains on sale of shares where no such dividend has been received by the assessee and no sale of shares have been undertaken by the assessee, matter relating to depreciation on ROU assets where no such asset has been purchased at first place and depreciation has already been written back in the computation of income and matter relating to advertisement expenses being incurred for the purposes of assessee‟s business.

The PCIT's direction to the AO to "re-examine" without adjudicating the merits violated natural justice and would cause unending litigation. The tribunal viewed that the matter be remitted to the file of the PCIT to allow him to consider the submissions so made by the assessee and pass a speaking order as per law after allowing reasonable opportunity to the assessee.

The ITAT set aside the PCIT's order and remitted the matter to the PCIT for fresh adjudication.

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