Section 263 Revision Fails When Underlying Reassessment Is Invalid for Want of Mandatory Section 143(2) Notice — ITAT Kolkata
Overview of the Dispute
The ITAT Kolkata recently adjudicated a significant appeal arising from an order passed by the National Faceless Appeal Centre for Assessment Year 2009-10, wherein the core question revolved around whether revisionary proceedings under Section 263 of the Income Tax Act, 1961 could be sustained when the underlying reassessment order was itself legally defective and void ab initio.
The assessee — Star Tradecom Private Limited — challenged the validity of reassessment proceedings completed under Sections 147/143(3) on the ground that the statutorily mandated notice under Section 143(2) had never been issued or served. The further argument was that once the reassessment order was rendered a nullity, the Principal Commissioner's exercise of revisionary jurisdiction under Section 263 premised upon that very assessment became legally unsustainable.
Admission of the Additional Ground of Appeal
During the appellate proceedings before the Tribunal, Star Tradecom Private Limited raised an additional legal ground not urged before the lower authorities. The Tribunal examined whether such a ground could be entertained at the appellate stage for the first time.
The Tribunal held affirmatively, observing that:
- The issue involved was a pure question of law
- All relevant facts were already present in the appeal folder
- No further factual inquiry or verification from any external source was necessary
The Tribunal reiterated the well-settled proposition that an assessee is fully entitled to raise any legal issue before an appellate authority even if it was never agitated before the lower forums.
The Tribunal drew support from the following binding precedents in admitting the additional ground:
- Jute Corporation of India Ltd. Vs CIT — 187 ITR 688 (Supreme Court)
- National Thermal Power Co. Ltd v. CIT — [1998] 229 ITR 383 (Supreme Court)
- PCIT vs. Britannia Industries Ltd. — [2017] 396 ITR 677 (Cal) (Calcutta High Court)
Factual Background
Original Return and Processing
Star Tradecom Private Limited filed its return of income on 11.07.2009, declaring a total income of ₹1,714/-, which was duly processed under Section 143(1) of the Income Tax Act, 1961.
Reopening of Assessment
The Assessing Officer thereafter reopened the case under Section 147 by issuing a notice under Section 148 dated 16.12.2010, on the basis that income under the head of miscellaneous expenses amounting to ₹1,26,870/- had escaped assessment within the meaning of Section 147. Pursuant to this, a reassessment order under Sections 147/143(3) was passed on 17.03.2011, determining the total income at ₹1,50,480/-.
Revision Proceedings Under Section 263
Upon subsequent examination of the assessment records, the Commissioner of Income Tax, KOL-III, Kolkata exercised revisionary jurisdiction under Section 263 and held that the reassessment order was erroneous and prejudicial to the interests of the Revenue. The basis for this finding was that the Assessing Officer had failed to conduct adequate inquiries into:
- The identity and creditworthiness of shareholders
- The genuineness of share capital transactions amounting to ₹5,07,00,000/- introduced during the relevant financial year
Accordingly, a show cause notice was issued and ultimately, an order under Section 263 was passed on 05.03.2013, setting aside the assessment with directions to re-frame the same after conducting thorough inquiries.
Consequential Proceedings and Addition Under Section 68
Following the revisionary order: