Full Judgment Text
2010:BHC-AS:9089-DB
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE EDJURISDICTION
WRIT PETITION NO.10160 OF 2009
Ashoka Buildcon Ltd.,
"Ashoka House", Ashoka Marg,
Vadala, Nashik - 422 001. ..Petitioner.
V/s.
1. Asstt. Commissioner of Income Tax,
Circle-2, Having his office at Wani
House, 1st Floor, New Mumbai Agra
Road, Nashik - 422 002.
2. Commissioner of Income Tax-1,
having his office Kendriya Rajaswa
Bhawan, Gadkari Chowk, Old Agra
Road, Old Agra Road, Nashik-422 002. ..Respondents.
Mr. Percy J. Pardiwala, Senior Advocate with Kr. Gopal, Jitendra
Singh and Satendra Pandey for petitioner.
Mr. Vimal Gupta for respondents.
CORAM : DR. D.Y.CHANDRACHUD
AND J.P.DEVADHAR, JJ.
DATED : 23RD APRIL, 2010
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ORAL JUDGMENT (PER DR. D.Y.CHANDRACHUD, J.)
1) 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.
2) The challenge in this proceeding is to a notice issued by
the Commissioner of Income Tax-I, Nashik on 30 April, 2009 seeking
to exercise the revisional jurisdiction under Section 263 of the
Income Tax Act, 1961.
3) The facts in so far as they are relevant to the controversy
before the Court lie in a narrow compass. The petitioner filed a
return of income for assessment year 2004-2005 on 1 November
2004 declaring a total income of Rs.2.81 crores. An order was
passed by this Court on 28 February 2005 in exercise of the
jurisdiction under Sections 391 to 394 of the Companies Act, 1956
by which six companies were amalgamated with the assessee with
effect from 1 April 2006. Consequent to the order of amalgamation a
consolidated return had to be filed. On 30 October 2005 the return
was revised. On 27 December 2006 the Assessing Officer passed
an order of assessment under Section 143 (3). The assessment
was sought to be reopened on 6 March 2007. The basis on which
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the assessment was sought to be reopened was that the benefit of
Section 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 27 December 2007 an order of reassessment was passed under
Section 143(3) read with Section 147 in terms of which the claim
under Section 72A was disallowed. On 30 April 2009 the
Commissioner of Income Tax-I, Nasik issued the impugned notice by
which the powers conferred by Section 263 are sought to be
invoked. It has been observed that the assessment order passed on
27 December, 2007 for assessment year 2004-05 was erroneous
and prejudicial to the interests of the Revenue.
4) The submission which has been urged on behalf of the
assessee by Counsel is that, though in form the Commissioner of
Income Tax has sought to revise the order dated 27 December, 2007
which was passed on a reassessment made under Section 143(3)
read with 147, in substance and in essence, what is sought to be
revised is the original order of assessment dated 27 December
2006. The submission is that in respect of the original order of
assessment dated 27 December 2006, the period of limitation for
exercising the revisional powers has expired on 31 March 2009
having regard to the provisions of Section 263 (2) and that
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consequently, the notice that is issued on 30 April 2009 is barred by
limitation. Alternatively, it has been submitted that if the order dated
27 December 2007 is sought to be revised, ex-facie, the impugned
notice dated 30 April, 2009 does not find any error in that order in so
far as a reassessment is made of income which had escaped
assessment with reference to the provisions of Section 72A.
Reliance has been placed on the judgment of the Supreme Court in
1
Commissioner of Income Tax V/s. Alagendran Finance Ltd.
5) 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 Section 143(3)
dated 27 December 2006 was sought to be reopened on 6 March
2007 solely on the basis that the benefit of Section 72A had been
wrongly allowed to the assessee. In the order of reassessment that
was passed thereupon under Section 143(3) read with Section 147
on 27 December 2007, the claim made by the assessee with
reference to the provisions of Section 72A was disallowed. While
seeking to exercise his jurisdiction under Section 263, the
Commissioner of Income Tax does not find any error in the order of
reassessment dated 27 December 2007 as regards the
disallowance claimed by the assessee on the basis of the provisions
1 (2007) 293 I.T.R. 1
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of Section 72A.
6) The impugned notice dated 30 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 Section 148 on 6 March
2007 nor the order of reassessment thereupon which was passed on
27 December 2007. The jurisdiction under Section 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 Section 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
Section 40A(2)(b) which expenses were allowed by the Assessing
Officer without calling for the assessee to explain the reasons for the
entries in the expenses for the previous year; (ii) The Assessing
Officer did not examine the claim under Section 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
Assessing Officer did not examine the genuineness of the
transactions pertaining to certain losses and advances at the time
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when he made the assessment; (iv) The Assessing Officer failed to
examine the increase in deposits in the previous year; (v) The
Assessing Officer did not conduct an inquiry into the genuineness of
the advances and depreciation during the year; (vi) The Assessing
Officer failed to make an inquiry into the genuineness of a liability in
the Share Suspense Account; (vii) The Assessing Officer did not
conduct an inquiry in respect of the liability in the Share Premium
Amount. According to the impugned notice, the failure of the
Assessing Officer 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) Section 263 empowers the Commissioner 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 Assessing Officer is erroneous in so far as it is prejudicial to
the interest of the Revenue. Sub-section (2) of Section 263
stipulates that no order shall be made under sub-section (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
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from the end of the financial year in which the original order of
assessment dated 27 December 2006 was passed, has expired on
31 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 Commissioner of Income Tax by
seeking to revise, under Section 263, the order dated 27 December
2007. The order dated 27 December, 2007 was passed after the
assessment was reopened on the ground of an escapement of
income under Section 147 and an order of reassessment was
passed by which the claim under Section 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
Section 72A, when the Commissioner as a Revisional Authority
under Section 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 Commissioner of Income Tax V/s. Alagendran
Finance Ltd . The issue which arose before the Supreme Court was
whether, for the purpose of computing the period of limitation
envisaged under sub-section (1) of Section 263, the date of the
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order of assessment or of the order of reassessment is to be taken
into consideration. In that case, the assessee filed its return for
assessment years 1994-95, 1995-96 and 1996-97 and the
assessments were completed on 27 February 1997, 12 May 1997
and 30 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
Assessing Officer 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 Commissioner of Income Tax
invoked his revisional jurisdiction under Section 263 and by his
order came to the conclusion that the assessee had not furnished
complete details and the order of the Assessing Officer was
prejudicial to the interest of the Revenue. The Tribunal held that the
order which was passed under Section 263 on 29 March 2004 was
barred by limitation. The Supreme Court held that the Commissioner
of Income Tax, while exercising his jurisdiction under Section 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
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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 C.I.T. V/s. Sun
2
Engineering Co. Pvt. Ltd. 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 Commissioner of Income-tax
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-section (2) of section 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
Commissioner of Income-tax beyond the period of limitation, it
was wholly without jurisdiction rendering the entire proceeding
a nullity. "
8) Where an assessment has been reopened under
Section 147 in relation to a particular ground or in relation to certain
2 (1992) 198 I.T.R. 297
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specified grounds and, subsequent to the passing of the order of
reassessment, the jurisdiction under Section 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-section (2) of Section 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.
9) Section 147 empowers the Assessing Officer, 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 Act (No.2) of 2009 with
retrospective effect from 1 April, 1989 provides that for the purpose
of assessment or reassessment under the Section, the Assessing
Officer 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-section (2) of Section
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148. The substantive part of Section 147 empowers the Assessing
Officer 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 Explanation 3 is to empower the Assessing Officer 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 Section
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 Assessing Officer, while making an order of
reassessment to deal with those issues under Section 143 (3) read
with 147 constitutes an error which can be revised in exercise of the
jurisdiction under Section 263. The submission cannot be accepted
either as a matter of first principle, based on a plain reading of the
provisions of Sections 147 and 263, nor is it sustainable in view of
the law laid down by the Supreme Court. The Supreme Court has
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now clearly held in the decision in Alagendran Finance 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 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 Section 143(3) read with Section 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 Section 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 Assessing Officer 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 Section 147. The
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submission of the Revenue is that by not passing an order of
reassessment in respect of other independent issues, the order of
the Assessing Officer can be construed to be erroneous and to be
prejudicial to the interest of the Revenue within the meaning of
Section 263. The submission cannot be accepted in the facts of the
present case. The substantive part of Section 147 as well as
Explanation 3 enables the Assessing Officer 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 Assessing Officer as
having escaped assessment in the course of the proceedings under
Section 147 and when he passed the order of reassessment. The
Commissioner, when he exercised his jurisdiction under Section 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 Section 263 is sought to be exercised in respect of issues
which did not form the subject matter of the reassessment
proceedings under Section 143(3) read with 147. In respect of those
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issues, limitation would commence with reference to the original
order of assessment. If the exercise of the revisional jurisdiction
under Section 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.
11) Counsel appearing on behalf of the Revenue relied upon
the judgment of the Supreme Court in Income Tax Officer V/s. K.L.
3
Srihari (UHF) . That was a case where an assessment was
reopened under Section 147. The Supreme Court, after considering
the original order of assessment dated 19 March 1983 and the order
of reassessment dated 16 July 1987 passed under Section 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
Section 147, the Assessing Officer 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
3 (2001) 118 Taxman 890 (S.C.)
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Alagendran Finance 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 which must, therefore, apply.
12) For these reasons, we are of the view that the exercise
of the revisional jurisdiction under Section 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.
13) Rule is made absolute in terms of prayer clause (a) by
setting aside the impugned notice dated 30 April 2009 issued under
Section 263. There shall be no order as to costs.
(J.P.DEVADHAR, J.) (DR. D.Y.CHANDRACHUD, J.)
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE EDJURISDICTION
WRIT PETITION NO.10160 OF 2009
Ashoka Buildcon Ltd.,
"Ashoka House", Ashoka Marg,
Vadala, Nashik - 422 001. ..Petitioner.
V/s.
1. Asstt. Commissioner of Income Tax,
Circle-2, Having his office at Wani
House, 1st Floor, New Mumbai Agra
Road, Nashik - 422 002.
2. Commissioner of Income Tax-1,
having his office Kendriya Rajaswa
Bhawan, Gadkari Chowk, Old Agra
Road, Old Agra Road, Nashik-422 002. ..Respondents.
Mr. Percy J. Pardiwala, Senior Advocate with Kr. Gopal, Jitendra
Singh and Satendra Pandey for petitioner.
Mr. Vimal Gupta for respondents.
CORAM : DR. D.Y.CHANDRACHUD
AND J.P.DEVADHAR, JJ.
DATED : 23RD APRIL, 2010
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ORAL JUDGMENT (PER DR. D.Y.CHANDRACHUD, J.)
1) 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.
2) The challenge in this proceeding is to a notice issued by
the Commissioner of Income Tax-I, Nashik on 30 April, 2009 seeking
to exercise the revisional jurisdiction under Section 263 of the
Income Tax Act, 1961.
3) The facts in so far as they are relevant to the controversy
before the Court lie in a narrow compass. The petitioner filed a
return of income for assessment year 2004-2005 on 1 November
2004 declaring a total income of Rs.2.81 crores. An order was
passed by this Court on 28 February 2005 in exercise of the
jurisdiction under Sections 391 to 394 of the Companies Act, 1956
by which six companies were amalgamated with the assessee with
effect from 1 April 2006. Consequent to the order of amalgamation a
consolidated return had to be filed. On 30 October 2005 the return
was revised. On 27 December 2006 the Assessing Officer passed
an order of assessment under Section 143 (3). The assessment
was sought to be reopened on 6 March 2007. The basis on which
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the assessment was sought to be reopened was that the benefit of
Section 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 27 December 2007 an order of reassessment was passed under
Section 143(3) read with Section 147 in terms of which the claim
under Section 72A was disallowed. On 30 April 2009 the
Commissioner of Income Tax-I, Nasik issued the impugned notice by
which the powers conferred by Section 263 are sought to be
invoked. It has been observed that the assessment order passed on
27 December, 2007 for assessment year 2004-05 was erroneous
and prejudicial to the interests of the Revenue.
4) The submission which has been urged on behalf of the
assessee by Counsel is that, though in form the Commissioner of
Income Tax has sought to revise the order dated 27 December, 2007
which was passed on a reassessment made under Section 143(3)
read with 147, in substance and in essence, what is sought to be
revised is the original order of assessment dated 27 December
2006. The submission is that in respect of the original order of
assessment dated 27 December 2006, the period of limitation for
exercising the revisional powers has expired on 31 March 2009
having regard to the provisions of Section 263 (2) and that
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consequently, the notice that is issued on 30 April 2009 is barred by
limitation. Alternatively, it has been submitted that if the order dated
27 December 2007 is sought to be revised, ex-facie, the impugned
notice dated 30 April, 2009 does not find any error in that order in so
far as a reassessment is made of income which had escaped
assessment with reference to the provisions of Section 72A.
Reliance has been placed on the judgment of the Supreme Court in
1
Commissioner of Income Tax V/s. Alagendran Finance Ltd.
5) 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 Section 143(3)
dated 27 December 2006 was sought to be reopened on 6 March
2007 solely on the basis that the benefit of Section 72A had been
wrongly allowed to the assessee. In the order of reassessment that
was passed thereupon under Section 143(3) read with Section 147
on 27 December 2007, the claim made by the assessee with
reference to the provisions of Section 72A was disallowed. While
seeking to exercise his jurisdiction under Section 263, the
Commissioner of Income Tax does not find any error in the order of
reassessment dated 27 December 2007 as regards the
disallowance claimed by the assessee on the basis of the provisions
1 (2007) 293 I.T.R. 1
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of Section 72A.
6) The impugned notice dated 30 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 Section 148 on 6 March
2007 nor the order of reassessment thereupon which was passed on
27 December 2007. The jurisdiction under Section 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 Section 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
Section 40A(2)(b) which expenses were allowed by the Assessing
Officer without calling for the assessee to explain the reasons for the
entries in the expenses for the previous year; (ii) The Assessing
Officer did not examine the claim under Section 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
Assessing Officer did not examine the genuineness of the
transactions pertaining to certain losses and advances at the time
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when he made the assessment; (iv) The Assessing Officer failed to
examine the increase in deposits in the previous year; (v) The
Assessing Officer did not conduct an inquiry into the genuineness of
the advances and depreciation during the year; (vi) The Assessing
Officer failed to make an inquiry into the genuineness of a liability in
the Share Suspense Account; (vii) The Assessing Officer did not
conduct an inquiry in respect of the liability in the Share Premium
Amount. According to the impugned notice, the failure of the
Assessing Officer 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) Section 263 empowers the Commissioner 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 Assessing Officer is erroneous in so far as it is prejudicial to
the interest of the Revenue. Sub-section (2) of Section 263
stipulates that no order shall be made under sub-section (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
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from the end of the financial year in which the original order of
assessment dated 27 December 2006 was passed, has expired on
31 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 Commissioner of Income Tax by
seeking to revise, under Section 263, the order dated 27 December
2007. The order dated 27 December, 2007 was passed after the
assessment was reopened on the ground of an escapement of
income under Section 147 and an order of reassessment was
passed by which the claim under Section 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
Section 72A, when the Commissioner as a Revisional Authority
under Section 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 Commissioner of Income Tax V/s. Alagendran
Finance Ltd . The issue which arose before the Supreme Court was
whether, for the purpose of computing the period of limitation
envisaged under sub-section (1) of Section 263, the date of the
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order of assessment or of the order of reassessment is to be taken
into consideration. In that case, the assessee filed its return for
assessment years 1994-95, 1995-96 and 1996-97 and the
assessments were completed on 27 February 1997, 12 May 1997
and 30 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
Assessing Officer 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 Commissioner of Income Tax
invoked his revisional jurisdiction under Section 263 and by his
order came to the conclusion that the assessee had not furnished
complete details and the order of the Assessing Officer was
prejudicial to the interest of the Revenue. The Tribunal held that the
order which was passed under Section 263 on 29 March 2004 was
barred by limitation. The Supreme Court held that the Commissioner
of Income Tax, while exercising his jurisdiction under Section 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
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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 C.I.T. V/s. Sun
2
Engineering Co. Pvt. Ltd. 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 Commissioner of Income-tax
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-section (2) of section 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
Commissioner of Income-tax beyond the period of limitation, it
was wholly without jurisdiction rendering the entire proceeding
a nullity. "
8) Where an assessment has been reopened under
Section 147 in relation to a particular ground or in relation to certain
2 (1992) 198 I.T.R. 297
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specified grounds and, subsequent to the passing of the order of
reassessment, the jurisdiction under Section 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-section (2) of Section 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.
9) Section 147 empowers the Assessing Officer, 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 Act (No.2) of 2009 with
retrospective effect from 1 April, 1989 provides that for the purpose
of assessment or reassessment under the Section, the Assessing
Officer 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-section (2) of Section
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11
148. The substantive part of Section 147 empowers the Assessing
Officer 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 Explanation 3 is to empower the Assessing Officer 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 Section
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 Assessing Officer, while making an order of
reassessment to deal with those issues under Section 143 (3) read
with 147 constitutes an error which can be revised in exercise of the
jurisdiction under Section 263. The submission cannot be accepted
either as a matter of first principle, based on a plain reading of the
provisions of Sections 147 and 263, nor is it sustainable in view of
the law laid down by the Supreme Court. The Supreme Court has
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now clearly held in the decision in Alagendran Finance 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 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 Section 143(3) read with Section 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 Section 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 Assessing Officer 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 Section 147. The
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submission of the Revenue is that by not passing an order of
reassessment in respect of other independent issues, the order of
the Assessing Officer can be construed to be erroneous and to be
prejudicial to the interest of the Revenue within the meaning of
Section 263. The submission cannot be accepted in the facts of the
present case. The substantive part of Section 147 as well as
Explanation 3 enables the Assessing Officer 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 Assessing Officer as
having escaped assessment in the course of the proceedings under
Section 147 and when he passed the order of reassessment. The
Commissioner, when he exercised his jurisdiction under Section 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 Section 263 is sought to be exercised in respect of issues
which did not form the subject matter of the reassessment
proceedings under Section 143(3) read with 147. In respect of those
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14
issues, limitation would commence with reference to the original
order of assessment. If the exercise of the revisional jurisdiction
under Section 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.
11) Counsel appearing on behalf of the Revenue relied upon
the judgment of the Supreme Court in Income Tax Officer V/s. K.L.
3
Srihari (UHF) . That was a case where an assessment was
reopened under Section 147. The Supreme Court, after considering
the original order of assessment dated 19 March 1983 and the order
of reassessment dated 16 July 1987 passed under Section 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
Section 147, the Assessing Officer 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
3 (2001) 118 Taxman 890 (S.C.)
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Alagendran Finance 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 which must, therefore, apply.
12) For these reasons, we are of the view that the exercise
of the revisional jurisdiction under Section 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.
13) Rule is made absolute in terms of prayer clause (a) by
setting aside the impugned notice dated 30 April 2009 issued under
Section 263. There shall be no order as to costs.
(J.P.DEVADHAR, J.) (DR. D.Y.CHANDRACHUD, J.)
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