TaxTMI 
TaxTMI 
TaxTMI 
2022 (10) TMI 418
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....s barred by limitation. For this, the assessee has raised the following grounds No.2, 3 & 4 as under: "2. For that the order of the Principal Commissioner of Income Tax passed u/s.263 is barred by limitation. 3. For that the Principal Commissioner of Income Tax erred in invoking the / provisions of section 263 in respect of the assessment order passed u/s. 147 r.w.s. 143(3), wherein the issue of claim of loss by the appellant is not the subject matter of the reassessment order; it is a subject matter of the assessment order passed u/s. 143(3). 4. For that the Principal Commissioner of Income Tax failed to appreciate 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." 3. A show cause notice was received by the assessee from the PCIT-4, Chennai u/s. 263 of the Act for revising the assessment and the PCIT wanted to revise the assessment for the reason that the compensation to the extent of Rs. 1.16 Crore to be borne by the assessee for having received the advance of Rs. 2.5 Crore from Mr. K. Sreejith was discharged by the assessee company. Thus, in term of s. 2(24)(iv) of the Ac....
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....e books of the company and not in the hands of the assessee. Secondly, the obligation on part of the assessee to the extent of Rs. 1.16 crores has been discharged by the company and thus in terms of S. 2(24)(iv), this benefit of Rs. 1.16 crores has to be additionally brought to tax." 4. Finally, the PCIT passed revision order u/s. 263 of the Act and set aside the assessment framed by A.O i.e., the reassessment order dated 23.11.2019 passed u/s. 143(3) r/w 147 of the Act by DCIT, Chennai. The PCIT while revising the assessment observed in Para 7.1 to 8.1 as under: "7.1 Coming to the merits of the case, it is abundantly clear that the compensation on account of "Out of Court" settlement with Sri P. Sreejith was paid out in kind by discharging the property owned by the Company and not by the Assessee. Such loss to the company was never compensated by the assessee either in cash or kind subsequently. The liability to such effect was neither in the past nor future was borne by the Asseseee. In short, there was never a liability cast upon the assessee in any form consequent to this transaction. 7.2 Under the provisions of Income tax law, each person defined u/s 2(31) is distinct a....
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....assessee in this appeal is as regards to barred by limitation. The Ld. Counsel for the assessee Ms. T.V. Muthu Abirami, Advocate stated that in the original assessment order passed by ACIT dated 28.12.2016 u/s. 143(3) of the Act, this issue was considered by the A.O. For this, she relied on the notice issued by A.O u/s. 142(1) dated 21.04.2016 along with Annexure to notice u/s. 142(1), wherein the details of sundry debtors and creditors, details of investments made during the year and source thereof was called for. The Ld. Counsel for the assessee stated that the assessee received unsecured loan as outstanding as on 31.03.2014 to the extent of Rs. 5,10,11,353/- and advances from customers to the extent of Rs. 26,63,83,813/-. The assessee has given complete details of unsecured loan in its reply dated 26.10.2016 and also in respect of advances from customers. The Ld. Counsel also explained the transactions entered into with Shri P. Sreejith and payment made of Rs. 1.16 Crore was disclosed before A.O during original assessment proceedings vide letter dated 26.10.2016 and the relevant question raised by A.O vide letter dated 26.10.2016, reads as under: "In the consolidated Profit an....
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....n his revision order passed u/s. 263 of the Act is as regards to compensation of Rs. 1.16 Crore whether to be taxed in the hands of the assessee or assessee is entitled or not entitled to claim loss of Rs. 1.16 Crore. According to her, this issue was considered by the A.O during original assessment proceedings and a specific query was raised by the A.O during original assessment proceedings vide notice dated 26.10.2016 and the assessee has replied to the same, which was considered by A.O and allowed the claim of loss of Rs. 1,16,46,460/-. According to her, the point of dispute starts from the original assessment order as a particular issue was before A.O during original assessment proceedings and original assessment was completed by the A.O on 28.12.2016. She argued, without conceding, but if the facts are that the A.O's order is erroneous or prejudicial to the interest of Revenue i.e., only the original assessment order passed u/s. 143(3) of the Act order dated 28.12.2006. She stated that the revision order passed by PCIT-4, Chennai dated 18.11.2021 is barred by limitation. In view of the above facts, the Ld. Counsel for the assessee stated that this issue is specifically covered ....
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....e power to revise any order, as referred to in sub section (1) of section 263 of the Act, before expiry of two years from the end of the financial year in which the order sought to be revised was passed. A reference to the dates and events narrated above would make it clear that time limit for revising the assessment order passed under section 143(3) (the original assessment order) has already expired. Whereas, the time limit for revising the assessment order passed under section 143(3) r.w.s. 147 of the Act was still there. Thus, the crucial issue which requires adjudication is, whether the revision order passed under section 263 of the Act within limitation or not? 13. A perusal of the reasons recorded for reopening of assessment under section 147 of the Act, as reproduced in this order, would reveal that the assessing officer has reopened the assessment under section 147 of the Act for the specific purpose of assessing the amount of Rs.50,00,000/- cash deposit in the bank account as unexplained. It is also a fact on record that the assessing officer has ultimately completed the assessment under section 143(3) r.w.s. 147 of the Act by making of addition of Rs.50,00,000/-, i.e. t....
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....under section 143(3) of the Act would make it clear that the issue relating to assessment in term of s. 2(24)(iv) of the Act, this benefit of Rs. 1.16 Crore has to be brought to tax was a subject matter there. In fact, the assessing officer has dealt with the above issue of assessment in term of s. 2(24)(iv) of the Act, this benefit of Rs. 1.16 Crore has to be brought to tax in the assessment order passed under section 143(3) of the Act. Thus, this issue cannot be a subject matter of re-assessment under section 147 of the Act, as, such reopening of assessment was for assessing a particular income, which escaped assessment. Thus, the attempt of learned PCIT to get over the decision of Hon'ble Supreme Court in case of CIT vs Alagendra Finance Ltd. (supra) and the decision of Hon'ble Bombay High Court in Asoka Buildcon Ltd vs. ACIT 325 ITR 574 (Bob.) by referring to the third proviso to section 147 of the Act must fail. In case of Alagendran Finance Ltd (supra), the Hon'ble Supreme Court, while dealing with more or less an identical issue of revisionary power exercised under section 263 of the Act in respect of an assessment order passed under section 143(3) r.w.s. 147 of ....
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....proceedings for bringing to tax an 'escaped assessment' can only commence by issuance of a notice under Section 148 of the Act within the time prescribed under the Act. Thus, under Section 147, the assessing officer has been vested with the power to "assess or reassess" the escaped income of an assessee. The use of the expression "assess or reassess such income or recompute the loss or depreciation allowance" in Section 147 after the conditions for reassessment are satisfied, is only relatable to the preceding expression in Clauses (a) and (b) viz., "escaped assessment". The term "escaped assessment" includes both "non- assessment" as well as "under assessment". Income is said to have "escaped assessment" within the meaning of this section when it has not been charged in the hands of an assessee in the relevant year of assessment. The expression "assess" refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of Section 147 because the assessment had not been made in the regular manner under the Act. The expression "reassess " refers to a situation where an assessment has already been made ....
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....seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was othenvise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment hut that the same had been shown under some inappropriate head in the original return, but to read the judgment in Jaganmohan Rao's case, as if laying down that reassessment wipes out the original assessment and that reassessment is not only confined to "escaped assessment" or "under assessment" but to the entire assessment for the year and starts the assessment proceeding de novo giving the right to an assessee to reagitate matters which he had lost during the original assessment proceeding, which had acquired finality, is not only erroneous but also against the phraseology of Section 147 of the Act and the object of reassessment proceedings. Such an ....
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....ere the subject matter of reassessment and subject matter of assessment were the same. They were not. 13. It may be of some interest to notice that a similar contention raised at the instance of an assessee was rejected by a 3-Judge Bench of this Court in Commissioner of Income-Tax v. Shri Arbuda Mills Ltd. [231 ITR 50]. This Court took note of the amendment made in Section 263 of the Act by the Finance Act, 1989 with retrospective effect from June 1, 1988, inserting Explanation (c) to Sub-section (1) of Section 263 of the Act stating: "The consequence of the said amendment made with retrospective effect is that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under section 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. This is sufficient to answer the question which has been referred." We, therefore, are clearly of the opinion that in a case of this nat....
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....ction 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." 16. Following the aforesaid decision of the Hon'ble Supreme Court, the Hon'ble Bombay High Court in case of Asoka Buildcon Ltd (supra), has held, as under:- "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 from the end of the financial year in which the original ....
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.... 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 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 Engineering Co. Pvt. Ltd.2 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 fallows :- "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 I....
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.... 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 now clearly held in the decision in Alagendran Finance that the doctrine....
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....tion under Section 263, in the facts of the present case, was under a bar of limitation since limitation would begin to rim 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 issu.es which did not form the subject matter of the reassessment proceedings under Section 143(3) read with 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 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. Srihari (UHF)3. 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....