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

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 allowed deductions u/s 36(1)(vii), 36(1)(viia) and on foreign exchange differences. These issues were never the subject of the subsequent reassessment orders u/s 147, hence the doctrine of merger did not apply, and the original assessment order continued to subsist on those aspects. Consequently, the limitation period for exercising revisional jurisdiction ran from the date of the original assessment, not the reassessment orders. Explanation 3 to s.147 did not override the specific time-bar in s.263(2). The revenue's appeal was dismissed.

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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.

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