ITAT Ahmedabad: Assessment Becomes Non-Existent Upon Annulment of Section 263 Directive
Introduction
The Income Tax Appellate Tribunal's Ahmedabad Bench delivered a significant verdict establishing that when a revision directive issued under Section 263 of the Income Tax Act is nullified, any subsequent assessment completed in pursuance of such directive becomes legally void from inception. This landmark pronouncement came in the matter of ACIT Vs Linde Engineering Pvt. Ltd., where the Revenue's appeal challenging deletion of disallowances was rendered redundant due to the prior invalidation of the foundational revision order.
Background of the Dispute
The controversy pertains to Assessment Year 2011-12, where the Assessing Officer had concluded an assessment under Section 143(3) read with Section 263 of the Income Tax Act, 1961. The original assessment was conducted following directions issued by the Principal Commissioner of Income Tax exercising revisionary jurisdiction under Section 263.
During the reassessment proceedings, the Assessing Officer disallowed a substantial deduction claimed under Section 10A amounting to Rs. 31,74,80,850. The Revenue department's primary grievance centered on this disallowance, particularly emphasizing the interplay between transfer pricing adjustments and export incentive deductions.
Procedural History
The assessee challenged the assessment before the Commissioner of Income Tax (Appeals), Ahmedabad-13, who rendered a decision on August 20, 2025. Following the appellate authority's ruling, the Revenue Department filed an appeal before the Tribunal, while the assessee simultaneously filed cross-objections questioning the fundamental validity of the assessment proceedings.
Key Timeline Events
- Original assessment completed under
Section 143(3)r.w.s.Section 263 - Separate proceedings challenging the
Section 263order initiated - ITAT Delhi Bench quashed the
Section 263order on March 30, 2022 - CIT(A) passed appellate order dated August 20, 2025
- Revenue appeal and assessee's cross-objection filed before ITAT Ahmedabad
- Final order pronounced on January 13, 2026
Revenue Department's Contentions
The Revenue's appeal before the ITAT focused exclusively on the following grievance:
The Commissioner (Appeals) committed an error in removing the disallowance made under Section 10A totaling Rs. 31,74,80,850. The department argued that according to statutory provisions contained in Section 92C(4) of the Act, when an assessee's total income undergoes enhancement due to arm's length price computation in transfer pricing matters, no deduction under Section 10A should be permitted on such enhanced income amount.
Transfer Pricing and Section 10A Interaction
The Revenue's position relied heavily on the legislative scheme that restricts export incentive benefits where income has been increased through transfer pricing adjustments. This represents an important intersection between international taxation principles and domestic incentive provisions.
Assessee's Cross-Objection Submissions
The assessee raised two substantive grounds through cross-objections:
Primary Ground - Invalidity of Assessment
The fundamental challenge raised was that the Assessing Officer erred in completing an assessment under Section 143(3) r.w.s. Section 263 without recognizing that the underlying proceedings under Section 263 had been declared invalid and quashed by the Income Tax Appellate Tribunal through an order dated March 30, 2022. Consequently, the assessee contended that the entire assessment proceedings stood void ab initio, were illegal, legally defective, and therefore warranted complete annulment.
Alternative Ground - Section 10A Disallowance
Without prejudice to the primary jurisdictional challenge, the assessee alternatively contested the merits of the disallowance made under Section 10A aggregating to Rs. 31,74,80,850, seeking its deletion.