No Recording of Service of Notice: ITAT Sets Aside Revision Order

Citron Infraprojects Ltd. Vs PCIT (ITAT Mumbai)

Introduction: In a recent judgment dated 27th July 2023, the Income Tax Appellate Tribunal (ITAT) Mumbai set aside an order passed by the Principal Commissioner of Income Tax (PCIT) concerning Citron Infraprojects Ltd. This decision raises crucial questions about the principles of natural justice, revision orders, and assessment proceedings in income tax cases.

Non-Adherence to Principles of Natural Justice: One of the key issues raised in the appeal by Citron Infraprojects Ltd. was that the PCIT did not adhere to the principles of natural justice while passing the ex-parte order. The ITAT Mumbai emphasized the importance of providing an adequate opportunity for the assessee to be heard.

Revisionary Power of PCIT: The ITAT Mumbai set aside the PCIT’s use of revisionary powers under section 263 of the Income Tax Act, stating that the show cause notice was not complied with and the assessee did not receive a fair chance to present their case.

The Issue of Assessment Order: The appellant disputed the assessment order passed by the Assessing Officer (AO) under section 144 and 153A, claiming that it was erroneous and prejudicial to the interest of the revenue. ITAT Mumbai ruled that the assessment should be revisited.

Evaluation of Share Valuation: The assessee also argued that the AO failed to examine the correctness of share valuation. The ITAT Mumbai took note of this and decided to remit the case back for a fresh assessment.

Notice Issuance and Serving: The ITAT questioned whether the notice issued under section 263 of the Act was properly served to the assessee, as this is fundamental for upholding the principles of natural justice.

Conclusion: The ITAT Mumbai’s decision in Citron Infraprojects Ltd. Vs PCIT is crucial for interpreting various provisions of the Income Tax Act, particularly regarding the principles of natural justice and revision orders. It brings to light the importance of adhering to procedural rules and laws. Importantly, the case sets a precedent for ensuring that due processes are followed, thereby safeguarding the interest of both the revenue and the assessee.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The assessee by filing the present appeal, sought to set aside the impugned order dated 23.03.2023 passed by the Principal Commissioner of Income Tax (hereinafter referred to as PCIT] qua the assessment year 2014-15 on the grounds inter-alia that :-

“1. On the facts and in the circumstances of the case and in law, the Hon’ble Principal Commissioner of Income Tax (Central)-4 erred in passing ex-parte order, not considering the submission filed by the appellant on 23.03.2023, thereby not following the principles of natural justice. The appellant, thus, prays that the said action of Hon’ble Principal CIT may kindly be quashed.

2. Without prejudice to Ground No. 1, the Hon’ble Principal Commissioner of Income Tax (Central)-4 erred in holding that the assessment order passed by the learned A.O. u/s. 144 r.w.s. 153A of the Act dated 26.02.2021 is erroneous and prejudicial to the interest of the revenue. The appellant prays that the order of the Principal CIT u/s. 263 may kindly be quashed and the assessment order of the Ld. A.O dated 26.02.2021 may be restored.

3. Without prejudice to Ground No. 1, the Hon’ble Principal Commissioner of Income Tax (Central)-4 erred in law and on facts in directing the Ld. A.O. to make addition in the assessment order passed u/s. 153A r.w.s. 144 of the Act which is not based on any incriminating material found in the search.

4. Without prejudice to Ground No. 1, the Hon’ble Principal Commissioner of Income Tax (Central)-4 erred in revising the approval of the Ld. Addl. CIT, Central Range 6 obtained u/s. 153D of the – Income Tax Act, 1961. The appellant prays that the said action of Hon’ble Principal CIT may kindly be quashed.

5. Without prejudice to Ground No. 1, the Hon’ble Principal Commissioner of Income Tax (Central)-4 erred in holding that the Ld. A.O. has failed to examine the correctness of valuation of shares and setting aside the appellant’s case back to the Ld. A.O. for making a fresh assessment of such issue. The appellant prays that the said action of Hon’ble Principal CIT may kindly be quashed.

6. The appellant craves leave add/withdraw or amend any ground of appeal at the time of hearing or before hearing.”

2. Briefly stated facts necessary for consideration and adjudication of the issues at hand are : on the basis of search and seizure operation carried out at the premises of assessee “incriminating material” was seized on the basis of which notice under section 153A of the Income Tax Act, 1961 (for short ‘the Act’) was issued. During the course of assessment proceedings the assessee filed submissions in response to the notice issued under section 142(1) of the Act. Assessing Officer (AO) noticed that during the year under consideration the assessee company had issued 31,00,000 shares at premium of Rs.190/- per share (issue price Rs.200/-) to the different applicants detailed as under:

3. The value of the share got determined by valuation report issued by M/s. Sanjay & Shah Company, Chartered Accountant at Rs.200/- per share.

4. However, the Ld. PCIT by invoking the revisionary jurisdiction issued a notice under section 263 of the Act by flagging the issue that the AO should have computed the fair market value of the assessee company as per NAV method provided in rule-11UA(2)(a) of the Income Tax Rules, 1962 (for short ‘the Rules’) and thereby invoked the provisions contained under section 56(2)(viib) of the Act and worked out the share value as per rule 11U at Rs.136/-.

5. The Ld. PCIT reported to have given the opportunity to the Assessee proposing to revise the assessment order but show cause notice was not complied. Another notice was again issued but the assessee failed to respond. Consequently the Ld. PCIT held the order passed under section 144 read with section 153A of the Act as erroneous in so far as being prejudicial to the interest of the Revenue and thereby set aside the same.

6. The assessee carried the matter before the Ld. PCIT by way of filing appeal who has confirmed the addition by dismissing the appeal. Feeling aggrieved with the impugned order passed by the Ld. PCIT the assessee has come up before the Tribunal by way of filing present appeal.

7. Notice of the present appeal was issued to the assessee on the address given in form No.36 on 22.06.2023 but has not received back served/unserved and as such presumed to have been served upon the assessee. But the assessee has not preferred to prosecute the present appeal. So the Bench has decided to dispose of the present appeal on the basis of material available on record with the assistance of the Ld. D.R. for the Revenue.

8. We have heard the Ld. D.R. for the Revenue, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and case law relied upon.

7. The Ld. D.R. for the Revenue vehemently supported the order passed by the Ld. PCIT by contending that the present assessee is negligent one since beginning as he had neither appeared before the AO nor before the Ld. PCIT and as such the impugned order passed by the Ld. PCIT should be confirmed.

8. Bare perusal of the impugned order passed by the Ld. PCIT shows that the first notice under section 263 of the Act was reportedly issued to the assessee on 06.02.2023 and second notice was reportedly issued on 24.02.2023 but the assessee reported to have not been appeared and the Ld. PCIT has proceeded to pass the impugned order.

9. From the facts and circumstances of the case, we are of the opinion that the impugned order has been passed in haste without bringing on record if alleged notices issued to the assessee were ever served upon. It is also a fact on record that assessment order in this case is also passed at the back of the assessee. In these circumstances we do not find any reason to keep the appeal pending because ultimately order needs to be passed on merits by procuring the presence of the assessee by way of dasti summons by providing adequate opportunity of being heard. In these circumstances, we hereby set aside the impugned order passed by the Ld. PCIT and remit the case back to Ld. PCIT to decide afresh after procuring assessee’s presence and by providing opportunity of being heard.

10. Resultantly the appeal filed by the assessee is allowed for statistical purposes.

Order pronounced in the open court on 27.07.2023.