TaxTMI 
TaxTMI 
2011 (4) TMI 922
X X X X Extracts X X X X
X X X X Extracts X X X X
....is erroneous and prejudicial to the interest of the Revenue. (3) The learned CIT has grossly erred in law and on facts in assuming jurisdiction under section 263 of the Act on the erroneous ground that the impugned assessment order is erroneous insofar as it is prejudicial to the interest of the revenue. (4) Ld. CIT grossly erred in not appreciating that in order to invoke section 263, two conditions must be fulfilled viz., the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, ld. Assessing Officer either examined the issue at the original assessment stage or his view was one of the possible views and therefore there was no error in the impugned assessment order so as to justify action under section 263 of the Act. Under the circumstances, the very assumption of power under section 263 of the Act is unjustified and bad in law and therefore, order under section 263 of the Act is unjustified and bad in law and therefore, order under section 263 of the Act deserved to be quashed. (5) Alternatively and without prejudice to the grounds raised hereinabove, on merits, l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Gujarat Ambuja Exports Limited and other shares amounting to Rs. 1,75,50,634 into stock-in-trade during the relevant financial year. As per section 45(2) of the Act, for the purpose of computing capital gain in the case of conversion of capital assets into stock-in-trade, the fair market value of the capital assets on the date on which it was converted, will be deemed to be full value of consideration received on transfer. However, the year of taxability will be the year in which such converted stock-in-trade is sold or otherwise transferred. Thus, in the year of sale such stock-in-trade will attract capital gains under section 45(2) of the Act. The above mentioned conversion has to be treated as transfer under section 2(47) of the Act in the relevant assessment year since the said stock was sold subsequently in assessment year 2005-06. The assessee has omitted to disclose the closing stock of shares at fair market value on the date of conversion. On the other hand the Assessing Officer has failed to take note of it during the course of assessment proceedings." In response to the show-cause notice on above lines dated 12-3-2010, the assessee was represented by authorized repres....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... order dated 28-12-2007 on both the above points and directed the Assessing Officer to complete fresh assessment as per guidelines discussed in the order. The findings of the learned Commissioner of Income-tax are reproduced as under: "I have carefully considered the submissions placed on record on behalf of the assessee and given in the preceding paragraphs. I have further carefully perused the case record for the relevant assessment year. From a perusal of all this I find that in the assessment order dated 28-12-2007, the only addition made by the Assessing Officer was to the tune of Rs. 20,41,793 under section 2(22) of the Act which was deleted by the CIT(A) through his order dated 13-11-2009. The issues raised by the Assessing Officer in his proposal under section 263 dated 12-3-2010 were nowhere mentioned during the course of earlier assessment proceedings either directly or indirectly by the Assessing Officer of the assessee. The queries made by the Assessing Officer and the replies submitted by the assessee during the course of earlier assessment proceedings are totally silent on these two aspects now being raised before me. Hence, all the case laws submitted by Shri Pramod....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessment under section 143(1) of the IT Act only in relation to the above two items i.e., disallowance of interest and conversion of investment in to stock-in-trade which were not the subject-matter of reassessment proceedings under section 143(3)/147 of the IT Act, the period of limitation provided for in sub-section (2) of section 263 of the Act would beginning to run from the date of order of assessment under section 143(1) of the IT Act dated 2-5-2001 and not from the date of the order of reassessment under section 143(3)/147 of the IT Act dated 28-12-2007. He has, therefore, submitted that the impugned order under section 263 of the IT Act is clearly time-barred. In support of his contention, he has relied upon the decision of the Supreme Court in the case of CIT v. Alagendran Finance Ltd. [2007] 293 ITR 1/162 Taxman 465 in which it was held as under: "Assessments for the assessment years 1994-95, 1995-96 and 1996-97 on the assessee were completed in 1997 and 1998. In the orders of assessment, the assessee's claim relating to "Lease Equalisation Fund" was accepted. Thereafter orders of reassessment were initiated in respect of three other items but not the item relatin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee with reference to the provisions of section 72A was disallowed. While seeking to exercise his jurisdiction under section 263, the Commissioner did not find any error in the order of reassessment dated December 27, 2007 as regards the disallowance claimed by the assessee on the basis of the provisions of section 72A. The notice dated April 30, 2009, adverted to issues which did not form either the subject-matter of the notice that was issued under section 148 on March 6, 2007 nor of the order of reassessment thereupon which was passed on December, 2007. The jurisdiction under section 263 was sought to be exercised with reference to issues which were unrelated to the grounds on which the original assessment was reopened and reassessed. The period of two years under section 263(2) had expired on March 31, 2009. Hence, the exercise of revisional jurisdiction in respect of the original order of reassessment was barred by limitation. Thus, the notice of revision was set aside." 4.2 The learned Counsel for the assessee further submitted that the intimation/assessment under section 143(1) of the IT Act is an order of assessment and Commissioner can revise such an order under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....herefore, it is not a case of lack of inquiry on the part of the Assessing Officer. He has relied upon the decision of the Delhi High Court in the cases of CIT v. Vikas Polymers [2010] 194 Taxman 57 and in the case of CIT v. Sunbeam Auto Ltd. [2010] 189 Taxman 436 (Delhi). The learned Counsel for the assessee in the alternate contention submitted that since the Commissioner of Income-tax has given some observations against the assessee in the impugned order and in case the impugned order is confirmed, the Assessing Officer may be directed to decide the issue as per law. However, he has admitted that the Assessing Officer has already passed order dated 29-12-2010 under section 143(3)/147/263 of the IT Act in pursuance of the impugned order under appeal and submitted copy of the same in which the Assessing Officer made additions under section 36(1)(iii) of the IT Act by disallowing interest, Rs. 16,83,861 and addition of Rs. 1,29,87,469 has been made on account of undervaluation of closing stock. 5. On the other hand, the learned DR relied upon the impugned order and submitted that in the proceedings under section 143(1) of the IT Act the Assessing Officer has limited power and only....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ginal return was processed under section 143(1) of the IT Act only. 6. The learned Counsel for the assessee in the rejoinder mainly reiterated the same submissions and has agreed to the proposition that once an order of assessment is reopened the previous underassessment will be held to be set aside and the whole proceedings would start afresh under section 147/148 of the IT Act. 7. We have considered the rival submissions and material available on record. The facts noted above are not in dispute. It is not in dispute that the original return of income was processed under section 143 (1) of the IT Act on 2-5-2001 accepting the return of income of the assessee as it is. The provisions of section 143(1) of the IT Act as applicable to the assessment under appeal reads as under: "143. Assessment.-(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, (i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t aside and the whole proceedings would start afresh. Therefore, the matter in issue should have been considered by the Assessing Officer in the reassessment proceedings. 7.3 The Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297/64 Taxman 442 held as under: "In the proceedings under section 147 of the Income-tax Act, 1961, the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to the item or items which led to the issuance of a notice under section 148 and where reassessment is made under section 147 in respect of income which had escaped tax, the Income-tax Officer's jurisdiction is confined only to such income which has escaped tax or has been underassessed and does not extend to revision, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside." 7.4 ITAT Delhi Special Bench inn the case of Simbhaoli Industries (P.) Ltd. v. Dy. CIT [2001] 78 ITD 161 held as under: "Scope of the order under section 143(1)(a) is limited - A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as found as a matter of fact that Board has issued circular directing that no remedial action is necessary in summary cases. Accordingly, it was held by the Tribunal that Commissioner of Income-tax should not have exercised revisional power under section 263 of the IT Act. The Hon'ble Jurisdictional High Court dismissed the departmental appeal as noted above. 7.8 The Hon'ble Supreme Court in the case of Alagendran Finance Ltd. (supra) also noted that there may not be any doubt or dispute that once the order of assessment is reopened, previous under-statement will be held to be set aside and the whole proceedings would start afresh, but the same would not mean that even when the subject-matter of reassessment is distinct and different, the entire proceedings of assessment would be deemed to have been reopened. In this case, when the matter came up for consideration before the Tribunal, it was finding of fact that the claim of Lease Equalization Fund, if at all accepted, there was an error committed by the Assessing Officer in his order passed under section 143(3) of the IT Act for the assessment years 1994-95, 1995-96 and 1996-97. On such facts it was held that doctrine of merger d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 143(1) of the IT Act as per the decision of the Hon'ble Jurisdictional High Court in the case of Vikrant Crimpers (supra). Therefore, the contention of the learned Counsel for the assessee that limitation is to be counted from 2-5-2001 when the return was processed under section 143(1) of the IT Act has no force and is rejected. 8.1 Now, coming on merits, it is clear that on both the above issues under reference under section 263 of the IT Act, the Assessing Officer was empowered to consider the same issues in the reassessment proceedings even if the same were not noted in the reasons for reopening of the assessment because the Assessing Officer could also take note of such facts subsequently in the course of the reassessment proceedings, if any other income chargeable to tax has escaped assessment. The learned Counsel for the assessee as noted above also did not have disputed to such legal proposition. However, the record reveal that the Assessing Officer has failed to make any inquiry on both the issues in the reassessment proceedings despite specific material was available on record to prove prima facie that income escaped assessment on both the issues. The Assessing Officer ....