2012 (2) TMI 308 - HC - Income Tax

Revisional order under Section 263 held time-barred as reassessment under 147 did not disturb original 143(3) issues

The Commissioner of Income Tax3 Versus ICICI Bank Ltd.

HC upheld the Tribunal's decision that the Commissioner's order u/s 263 was barred by limitation u/s 263(2). The original assessment u/s 143(3) had ... Invocation of the revisional jurisdiction u/s 263 by the Commissioner - barred by limitation - compliance of the period of limitation prescribed u/s 263(2) - applicability of the doctrine of merger - Whether the Tribunal was right in holding that the Order of the CIT passed u/s 263, setting aside the Assessment Order passed u/s 143 read with Section 147 by the Assessing Officer is barred by limitation u/s 263(2) of the Income Tax Act? - HELD THAT:- Subsection (2) of Section 263 stipulates a period of limitation of two years within which an order under subsection (1) has to be passed. Under subsection (2) no order under Section 263(1) can be made after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. The order of assessment under Section 143(3) in the present case allowed the deduction which was claimed under Section 36(1)(vii), Section 36(1)(viia) and in respect of foreign exchange rate difference. Neither in the first order of reassessment dated 22 February 2000 nor in the second order of reassessment dated 26 March 2002 were these aspects determined. In other words on the aforesaid three issues, the original order of assessment dated 10 March 1999 passed under Section 143(3) continued to hold the field. Once that is the position, then clearly the doctrine of merger would not apply. The order under Section 143(3) passed on 10 March 1999 cannot stand merged with the orders of reassessment in respect of those issues which did not form the subject matter of the reassessment. Consequently Explanation 3 to Section 147 will not alter that position. Explanation 3 only enables the Assessing Officer, once an assessment is reopened, to assess or reassess the income in respect of any issue, even an issue in respect of which no reasons were indicated in the notice under Section 148(2). This, however, will not obviate the bar of limitation under Section 263(2). Where the jurisdiction under Section 263(1) is sought to be exercised with reference to an issue which is covered by the original order of assessment under Section 143(3) and which does not form the subject matter of the reassessment, as in the present case, limitation must necessarily begin to run from the order under Section 143(3). Before concluding we may also take notice of the fact that the second order of reassessment dated 26 March 2002 has been set aside by the Tribunal on 27 August 2010. An appeal against the order of the Tribunal is pending before this Court for admission. However, we have considered this appeal independently and have come to the conclusion that the invocation of the jurisdiction under Section 263 was barred by limitation. Accordingly we answer the question of law in the affirmative. Issues involved:1. Invocation of revisional jurisdiction under Section 263 of the Income Tax Act, 1961 by the Commissioner.2. Barred by limitation under Section 263(2) of the Income Tax Act.3. Interpretation of Section 36(1)(vii) amendment and Explanation 3 to Section 147.4. Commencement of the period of limitation for an order under Section 263.Issue 1: Invocation of revisional jurisdiction under Section 263:The Tribunal held that the Commissioner's order under Section 263 for disallowance was barred by limitation. The appeal raised the question of whether the Tribunal was correct in holding the order of the CIT setting aside the Assessment Order was time-barred under Section 263(2).Issue 2: Barred by limitation under Section 263(2):Subsection (2) of Section 263 states that no order shall be made after two years from the end of the financial year in which the order sought to be revised was passed. The key argument was that the order under Section 263 was sought to revise issues decided in the original assessment, and thus, the limitation period should commence from the date of the original assessment.Issue 3: Interpretation of Section 36(1)(vii) amendment and Explanation 3 to Section 147:The submission by the Revenue was based on the amendment to Section 36(1)(vii) and the insertion of Explanation 3 to Section 147. It was argued that the Assessing Officer failed to apply the amended law when reopening the assessment, leading to the Commissioner's order under Section 263.Issue 4: Commencement of the period of limitation for an order under Section 263:The Supreme Court's decision in Commissioner of Income Tax Vs. Alagendran Finance Ltd. clarified that the limitation period for an order under Section 263 starts from the date of the original assessment, not the reassessment. The Division Bench judgment in Ashoka Buildcon Ltd. further emphasized that the original assessment continues to hold for issues not part of the reassessment, affecting the commencement of the limitation period for revisional jurisdiction.In conclusion, the High Court ruled that the invocation of the jurisdiction under Section 263 was indeed barred by limitation. The judgment analyzed the timeline of assessments, the application of amended provisions, and the interpretation of relevant sections to determine the limitation period for revisional jurisdiction. The decision highlighted the importance of the original assessment in cases where issues were not part of reassessments, impacting the commencement of the limitation period for revisional orders.