Pr. Commissioner of Income Tax - 16 v. M/s. Universal Music India Pvt. Ltd.

1. Heard counsel and considered the appeal memo. Following two substantial questions of law have been proposed in the Appeal: “(a) Whether on the facts, in the circumstances of the case and as per law, the Hon’ble ITAT has erred in holding that in the revision proceedings the CIT cannot travel beyond the reasons given by him for revision in the show-cause notice without appreciating that the power of revision under Section 263 of the I.T. Act is not contingent on the giving of a notice to show cause ? (b) Whether on the facts, in the circumstances of the case and as per law, the Hon’ble ITAT has erred in holding that in Kanchan P Dhuri 1 / 8 the revision proceedings the CIT cannot travel beyond the reasons given by him for revision in the show-cause notice without appreciating the ratio laid down by Hon’ble Supreme Court in the case of CIT vs. Amitabh Bachchan (384 ITR 200) (2016) wherein it was clearly held by the Apex Court that there is nothing in Section 263 to make the CIT confine himself to the terms of show cause notice ?”

2. Respondent had filed return of income on 27th October, 2010 declaring income of ‘Nil’ for A.Y. 2009-2010. Subsequently, assessment was completed by an Order dated 20th December, 2011 under Section 143(3) of the Income Tax, 1961 (the Act).

3. Thereafter, notice under Section 263 was issued by CIT on two issues, namely, (a) disallowance of Fringe Benefit Tax (FBT) paid of Rs.10,72,532/- included in miscellaneous expenses and not allowed by the Assessing Officer and (b) provision of Rs.1,40,98,685/- in respect of slow moving and absolete inventories. The CIT directed Assessing Officer by an Order dated 20th March, 2013 to make enquiry and examine the two issues and a third issue being particulars of payments made to persons specified under Section 40A(2)(b) of the Act of Rs.7,00,22,680/- allowed in the assessment order. The assessment order was set aside on this issue and to be examined afresh.

4. Aggrieved by the order dated 20th March, 2013 passed by CIT, Kanchan P Dhuri 2 / 8 Respondent filed an Appeal before ITAT. ITAT by an order dated 27th April, 2016 allowed the Appeal.

5. On the issue of payments made to persons specified under Section 40A(2)(b) of the Act, the ITAT gave a finding of fact that no such issue was ever raised by CIT in the notice served upon the assessee and the assessee was not even confronted by the CIT before passing the Order dated 20th March,

2013. ITAT concluded that the said ground therefore cannot form the basis for revision of assessment order under Section 263 of the Act. It is only this finding of ITAT which is impugned in this Appeal. On the other two points, revenue has accepted the findings of ITAT that the Order under Section 263 was not warranted.

6. Mr. Suresh Kumar submitted that Apex Court in its Judgment dated 11th May, 2016 (after the impugned order was pronounced by ITAT) in Commissioner of Income-Tax, Mumbai v. Amitabh Bachchan[1], has held that the provisions of Section 263 does not warrant any notice to be issued and what is required is only to give the assessee an opportunity of being heard before reaching his decision and not before commencing the enquiry. Mr. Suresh Kumar submitted that therefore, the ITAT has erred in setting aside the Order of CIT on this issue.

7. It is true that the Apex Court in Amitabh Bacchan (supra) has 1 2016(69) taxmann.com 170 (SC) Kanchan P Dhuri 3 / 8 held, all that CIT is required to do before reaching his decision and not before commencing the enquiry, CIT must give the assessee an opportunity of being heard. It is true that the Judgment also says no notice is required to be issued. But in the case at hand, there is a finding of fact by the ITAT that no show cause notice was issued and no issue was ever raised by the CIT regarding payments made to persons specified under Section 40A(2)(b) of the Act before reaching his decision in the Order dated 20th March, 2013. If that was not correct certainly the order of the CIT would have mentioned that an opportunity was given and in any case, if there were any minutes or notings in the file, revenue would have produced those details before the ITAT.

8. In Amitabh Bachchan (supra), the Apex Court came to a finding that ITAT had not even recorded any findings that in the course of the suo motu revisional proceedings opportunity of hearing was not offered to the assessee and that the assessee was denied an opportunity to contest the facts on the basis of which the CIT had come to its conclusions as recorded in his order under Section 263 of the Act. It will be useful to reproduce paragraphs 10, 11 and 13 of Amitabh Bachchan (supra) and the same read as under:

11. It may be that in a given case and in most cases it is so done a notice proposing the revisional exercise is given to the assessee indicating therein broadly or even specifically the grounds on which the exercise is felt necessary. But there is nothing in the section (Section 263) to raise the said notice to the status of a mandatory show cause notice affecting the initiation of the exercise in the absence thereof or to require the C.I.T. to confine himself to the terms of the notice and foreclosing consideration of any other issue or question of fact. This is not the purport of Section 263. Of course, there can be no dispute that while the C.I.T. is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the C.I.T. prior to the finalization of the decision.

13. The above ground which had led the learned Tribunal to interfere with the order of the learned C.I.T. seems to be contrary to the settled position in law, as indicated above and the two decisions of this Court in Gita Devi Aggarwal (supra) and M/s Electro House (supra). The learned Tribunal in its order dated 28th August, 2007 had not recorded any finding that in course of the suo motu revisional proceedings, hearing of which was spread over many days and attended to by the authorized representative of the assessee, opportunity of hearing was not afforded to the assessee and that the assessee was denied an opportunity to contest the facts on the basis of which the learned C.I.T. had come to his conclusions as recorded in the order dated 20th March, 2006. Kanchan P Dhuri 7 / 8 Despite the absence of any such finding in the order of the learned Tribunal, before holding the same to be legally unsustainable the Court will have to be satisfied that in the course of the revisional proceeding the assessee, actually and really, did not have the opportunity to contest the facts on the basis of which the learned C.I.T. had concluded that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. The above is the question to which the Court, therefore, will have to turn to.”

9. In the case at hand, there is a finding by the Tribunal, as noted earlier, that no issue was raised by the CIT in respect of particulars of payment made to persons specified under Section 40A(2)(b) of the Act and even the show cause notice is silent about that.