High Court Of Bombay
Ashoka Buildcon Ltd. vs. Assistant Commissioner Of Income Tax & Anr.
Section 263(2)
Dr. D.Y. Chandrachud & J.P. Devadhar, JJ.
Writ Petn. No. 10160 of 2009
23rd April, 2010
Counsel appeared :
Percy J. Pardiwala with K. Gopal, Jitendra Singh & Satendra Pandey, for the Petitioner : Vimal Gupta, for the Respondents
JUDGMENT
Dr. D.Y. Chandrachud, J. :
Rule, by consent made returnable forthwith. Counsel for the respondents waives service. With the consent of counsel, the petition is taken up for final hearing.
The challenge in this proceeding is to a notice issued by the CIT-I, Nasik on 30th April, 2009 seeking to exercise the revisional jurisdiction under s. 263 of the IT Act, 1961.
The facts insofar as they are relevant to the controversy before the Court lie in a narrow compass. The petitioner filed a return of income for asst. yr. 2004-05 on 1st Nov., 2004 declaring a total income of Rs. 2.81 crores. An order was passed by this Court on 28th Feb., 2005 in exercise of the jurisdiction under ss. 391 to 394 of the Companies Act, 1956 by which six companies were amalgamated with the assessee w.e.f. 1st April, 2006. Consequent to the order of amalgamation a consolidated return had to be filed. On 30th Oct., 2005 the return was revised. On 27th Dec., 2006 the AO passed an order of assessment under s. 143(3). The assessment was sought to be reopened on 6th March, 2007. The basis on which the assessment was sought to be reopened was that the benefit of s. 72A, which deals with the carry forward and set off of accumulated losses and unabsorbed depreciation allowances in cases inter alia of amalgamation and merger was wrongly allowed. On 27th Dec., 2007 an order of reassessment was passed under s. 143(3) r/w s. 147 in terms of which the claim under s. 72A was disallowed. On 30th April, 2009 the CIT-I, Nasik issued the impugned notice by which the powers conferred by s. 263 are sought to be invoked. It has been observed that the assessment order passed on 27th Dec., 2007 for asst. yr. 2004-05 was erroneous and prejudicial to the interests of the Revenue.
The submission which has been urged on behalf of the assessee by counsel is that, though in form the CIT has sought to revise the order dt. 27th Dec., 2007 which was passed on a reassessment made under s. 143(3) r/w s. 147, in substance and in essence, what is sought to be revised is the original order of assessment dt. 27th Dec., 2006. The submission is that in respect of the original order of assessment dt. 27th Dec., 2006, the period of limitation for exercising the revisional powers has expired on 31st March, 2009 having regard to the provisions of s. 263(2) and that consequently, the notice that is issued on 30th April, 2009 is barred by limitation. Alternatively, it has been submitted that if the order dt. 27th Dec., 2007 is sought to be revised, ex facie, the impugned notice dt. 30th April,2009 does not find any error in that order insofar as a reassessment is made of income which had escaped assessment with reference to the provisions of s. 72A. Reliance has been placed on the judgment of the Supreme Court in CIT vs. Alagendran Finance Ltd. (2007) 211 CTR (SC) 69 : (2007) 293 ITR 1 (SC). Now, in the present case, it would be appropriate at the outset to advert to the admitted position as it emerges from the record. The original order of assessment under s. 143(3), dt. 27th Dec., 2006 was sought to be reopened on 6th March, 2007 solely on the basis that the benefit of s. 72A had been wrongly allowed to the assessee. In the order of reassessment that was passed thereupon under s. 143(3) r/w s. 147 on 27th Dec., 2007, the claim made by the assessee with reference to the provisions of s. 72A was disallowed. While seeking to exercise his jurisdiction under s. 263, the CIT does not find any error in the order of reassessment dt. 27th Dec., 2007 as regards the disallowance claimed by the assessee on the basis of the provisions of s. 72A.
The impugned notice dt. 30th April, 2009 adverts to issues which, as a matter of fact, do not form either the subject-matter of the notice that was issued under s. 148 on 6th March, 2007 nor the order of reassessment thereupon which was passed on 27th Dec., 2007. The jurisdiction under s. 263 is sought to be exercised with reference to issues which are unrelated to the grounds on which the original assessment was reopened and reassessed. Hence for the sake of clarity, it would be appropriate to set out at this stage the basis on which the notice under s. 263 has been issued. According to the impugned notice : (i) On a perusal of the assessment order, it was seen that several payments were made to associated concerns which fell in the category of s. 40A(2)(b) which expenses were allowed by the AO without calling for the assessee to explain the reasons for the entries in the expenses for the previous year; (ii) The AO did not examine the claim under s. 36(1)(iii) as regards interest on advances furnished by the assessee to associate companies for which interest was paid on funds borrowed from financial institutions; (iii) In respect of the squared-up accounts, the AO did not examine the genuineness of the transactions pertaining to certain losses and advances at the time when he made the assessment; (iv) The AO failed to examine the increase in deposits in the previous year; (v) The AO did not conduct an inquiry into the genuineness of the advances and depreciation during the year; (vi) The AO failed to make an inquiry into the genuineness of a liability in the share suspense account; (vii) The AO did not conduct an inquiry in respect of the liability in the share premium amount. According to the impugned notice, the failure of the AO to examine the aforesaid issues, to verify the justification of the claims and to conduct inquiries to ascertain the correctness of the claim of expenditure, rendered the assessment erroneous and prejudicial to the interests of the Revenue.
7. Sec. 263 empowers the CIT to call for and examine the record of any proceedings under the Act and to pass such orders as the circumstances of the case justify, including an order enhancing, modifying or cancelling the assessment and directing a fresh assessment, if he considers that any order passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. Subs. (2) of s. 263 stipulates that no order shall be made under sub-s. (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. That period of two years from the end of the financial year in which the original order of assessment dt. 27th Dec., 2006 was passed, has expired on 31st March, 2009. Hence the exercise of the revisional jurisdiction in respect of the original order of reassessment is barred by limitation. This is sought to be obviated by the CIT by seeking to revise, under s. 263, the order dt. 27th Dec., 2007. The order dt. 27th Dec., 2007 was passed after the assessment was reopened on the ground of an escapement of income under s. 147 and an order of reassessment was passed by which the claim under s. 72A came to be disallowed. The submission that has been urged on behalf of the assessee is that, since the assessment was opened and an order of reassessment was passed only one issue namely, the claim under s. 72A, when the CIT as a revisional authority under s. 263 seeks to exercise his jurisdiction on matters which did not form the subject of the order of reassessment, the period of limitation would begin to run from the original order of assessment. This submission which has been urged on behalf of the assessee would have to be accepted in view of the judgment of the Supreme Court in CIT vs. Alagendran Finance Ltd. (supra). The issue which arose before the Supreme Court was whether, for the purpose of computing the period of limitation envisaged under sub-s. (1) of s. 263, the date of the order of assessment or of the order of reassessment is to be taken into consideration. In that case, the assessee filed its return for asst. yrs. 1994-95, 1995-96 and 1996-97 and the assessments were completed on 27th Feb., 1997, 12th May, 1997 and 30th March, 1998. In the orders of assessment, the return of the assessee under the head of “Lease equalisation fund” were accepted. Proceedings for reassessment were initiated by the AO and orders of reassessment were passed in respect of the following items namely (i) expenses claimed for share issue; (ii) bad and doubtful debts; and (iii) excess depreciation on gas cylinders and goods containers. Though the return of income in respect of the “lease equalisation fund” was not the subject-matter of the reassessment proceedings, the CIT invoked his revisional jurisdiction under s. 263 and by his order came to the conclusion that the assessee had not furnished complete details and the order of the AO was prejudicial to the interest of the Revenue. The Tribunal held that the order which was passed under s. 263 on 29th March, 2004 was barred by limitation. The Supreme Court held that the CIT, while exercising his jurisdiction under s. 263 found that only that part of the order of assessment which related to the lease equalisation fund was prejudicial to the interests of the Revenue. But the proceedings for reassessment had nothing to do with the said head of income. The Supreme Court clearly held that the doctrine of merger was not attracted to a case of that nature. The Supreme Court followed its earlier judgment in CIT vs. Sun Engineering Works (P) Ltd. (1992) 107
CTR (SC) 209 : (1992) 198 ITR 297 (SC) and held that the Tribunal had found that all the subsequent events were in respect of matters other than the lease equalisation fund. In other words, this was not a case where the subject- matter of the assessment and the reassessment was the same. The Supreme Court then held as follows : “We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, having regard to the fact that the CIT exercising his revisional jurisdiction reopened the order of assessment only in relation to lease equalisation fund which being not the subject of reassessment proceedings, the period of limitation provided for under sub-s. (2) of s. 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus been invoked by the CIT beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity.” Where an assessment has been reopened under s. 147 in relation to a particular ground or in relation to certain specified grounds and, subsequent to the passing of the order of reassessment, the jurisdiction under s. 263 is sought to be exercised with reference to issues which do not form the subject of the reopening of the assessment or the order of reassessment, the period of limitation provided for in sub-s. (2) of s. 263 would commence from the date of the order of assessment and not from the date on which the order reopening the reassessment has been passed. Sec. 147 empowers the AO, if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year to assess or reassess the said income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. Explanation 3 which has been inserted by the Finance (No. 2) Act of 2009 with retrospective effect from 1st April,1989 provides that for the purpose of assessment or reassessment under the section, the AO may assess or reassess the income in respect of any issue which has escaped assessment and such issue comes to his notice subsequently, in the course of the proceedings under the section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-s. (2) of s. 148. The substantive part of s. 147 empowers the AO to assess or reassess the income chargeable to tax which has escaped assessment and any other income which comes to his notice subsequently in the course of proceedings under the section. The effect of Expln. 3 is to empower the AO to assess or reassess the income in respect of any issue which comes to the notice in the course of the proceedings under the section, though the reasons which were recorded in the notice under s. 148(2) did not contain reference to that issue.
10. The submission which has been urged on behalf of the Revenue is that when several issues are dealt with in the original order of assessment and only one or more of them are dealt with in the order of reassessment passed after the assessment has been reopened, the remaining issues must be deemed to have been dealt with in the order of reassessment. Hence, it has been urged that the omission of the AO, while making an order of reassessment to deal with those issues under s. 143 (3) r/w s. 147 constitutes an error which can be revised in exercise of the jurisdiction under s. 263. The submission cannot be accepted either as a matter of first principle, based on a plain reading of the provisions of ss. 147 and 263, nor is it sustainable in view of the law laid down by the Supreme Court. The Supreme Court has now clearly held in the decision in Alagendran Finance Ltd. (supra) that the doctrine of merger does not apply where the subject-matter of reassessment and of the original order of assessment is not one and the same. In other words, where the assessment is sought to be reopened only one or more specific grounds and the reassessment is confined to one or more of those grounds, the original order of assessment would continue to hold the field, save and except for those grounds on which a reassessment has been made under s. 143(3) r/w s. 147. Consequently, an appeal by the assessee on those grounds on which the original order of assessment was passed and which do not form the subject of reassessment would continue to subsist and would not abate. The order of assessment cannot be regarded as being subsumed within the order of reassessment in respect of those items which do not form part of the order of reassessment. Where a reassessment has been made pursuant to a notice under s. 148, the order of reassessment prevails in respect of those items which form part of reassessment. On items which do not form part of the reassessment, the original assessment continues to hold the field. When the AO reopens an assessment on a particular issue, it is open to him to make a reassessment on that issue as well as in respect of other issues which subsequently come to his notice during the course of the proceedings under s. 147. The submission of the Revenue is that by not passing an order of reassessment in respect of other independent issues, the order of the AO can be construed to be erroneous and to be prejudicial to the interest of the Revenue within the meaning of s. 263. The submission cannot be accepted in the facts of the present case. The substantive part of s. 147 as well as Expln. 3 enables the AO to assess or reassess income chargeable to tax which he has reason to believe had escaped assessment and other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. There is nothing on the record of the present case to indicate that there was any other income which had come to the notice of the AO as having escaped assessment in the course of the proceedings under s. 147 and when he passed the order of reassessment. The CIT, when he exercised his jurisdiction under s. 263, in the facts of the present case, was under a bar of limitation since limitation would begin to run from the date on which the original order of assessment was passed. We must however clarify that the bar of limitation in this case arises because the revisional jurisdiction under s. 263 is sought to be exercised in respect of issues which did not form the subject-matter of the reassessment proceedings under s. 143(3) r/w s. 147. In respect of those issues, limitation would commence with reference to the original order of assessment. If the exercise of the revisional jurisdiction under s. 263 was to be in respect of issues which formed the subject-matter of the reassessment, after the original assessment was reopened, the commencement of limitation would be with reference to the order of reassessment. The present case does not fall in that category.
Counsel appearing on behalf of the Revenue relied upon the judgment of the Supreme Court in ITO vs. K.L. Srihari (HUF) & Ors. (2002) 176 CTR (SC) 99 : (2001) 118 Taxman 890 (SC). That was a case where an assessment was reopened under s. 147. The Supreme Court, after considering the original order of assessment dt.
19th March, 1983 and the order of reassessment dt. 16th July, 1987 passed under s. 147 held that the subsequent order made a fresh assessment of the entire income of the assessee. Once, in the exercise of the power under s. 147, the AO had reassessed the entire income of the assessee, the Supreme Court held that the original order would stand effaced by the subsequent order. Srihari was, therefore, a case where the subject-matter of the original order of assessment as well as of the order of reassessment was the same. This is distinct from the situation in the subsequent judgment of Alagendran Finance Ltd. (supra) where the Supreme Court noted that the subject-matter of the original assessment and the order of reassessment was not the same. The facts of the present case are similar to those in Alagendran Finance Ltd. (supra) which must, therefore, apply.
For these reasons, we are of the view that the exercise of the revisional jurisdiction under s. 263 is barred by limitation. We clarify that this would not preclude the Revenue from taking recourse to any other remedy that may be available in law.
Rule is made absolute in terms of prayer cl. (a) by setting aside the impugned notice dt. 30th April, 2009 issued under s. 263. There shall be no order as to costs.
[Citation : 325 ITR 574]
