TaxTMI 
TaxTMI 
2019 (1) TMI 2039
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Subsequent to passing of order u/s 254 dated 24.6.2014 & u/s 154 dated 17.11.2014, the total income was determined at Rs.256.50 crores. The then Pr. CIT revised the order passed on 24.6.2014 u/s 263 of the Act. In the appeal preferred by the assessee against the above said revision order, the ITAT set aside the revision order, vide its order dated 01-09-2017. 4. The assessing officer, thereafter, reopened the assessment by issuing notice u/s 148 of the Act on 29.03.2016 and completed the assessment on 28.12.2016 determining the total income at Rs.278.28 crores and the book profit at Rs.588.91 crores. The impugned revision order is claimed to have been passed against the assessment order dated 29-03-2016 passed in reassessment proceeding. 5. On examination of assessment record, the Ld Pr. CIT noticed that the assessee company has reduced Rs.225.00 crores relating to Debenture Redemption Reserve (DRR) from the Net Profit, while computing Book profit u/s 115JB of the Act. The assessee company did so treating the amount appropriated to Debenture Redemption Reserve as an "ascertained liability". The Ld Pr. CIT took the view that the Debenture Redemption Reserve was merely an approp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on the judgment of jurisdictional ITAT in the case of JSW Energy Ltd vs Assistant Commissioner of Income Tax, Circle -11(5). Further reliance is placed on certain other judgment from Mumbai Tribunal and Ahmedabad Tribunal. d) The reliance is also placed on the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd vs CIT [2002] 255 ITR 273/122 Taxman 562, wherein the Apex Court held that once accounts prepared as per Companies Act are verified by the authorities under Companies Act, it is not open to the AO to make changes in the accounts so prepared for the computation of book profit. Further reliance is placed on judgment of Bombay High Court in the case of CIT vs Akshay Textiles Trading & Agencies Pvt Ltd [2008] 304 ITR 401/167 Taxman 324 and CIT vs Adbhut Trading Co Pvt Ltd [2011] 338 ITR 94/20 Taxmann.com 419 (Bom); and the judgment of ITAT in the case of Forever Diamons Pvt Ltd vs Dep CIT, Central's. 1, Mumbai [2013] 31 Taxmann.com 151 (Mum). e) DRR could not be added to calculate book profits u/s 115JB of the Act as it does not fall under any of the clauses specified, even does not fall under clause (c), (As DRR is ascertained liability) under the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ered with. The Ld Pr. CIT observed that the Reserve created for redemption of debentures is for the payment of Capital liability and hence it cannot be considered as a Charge while determining profits under recognised method of accounting.. In this regard, he took support of decision rendered by Bangalore bench of ITAT in the case of D.R Ranka Charitable Trust vs. DIT (2010)(3 ITR (AT) 151). In the above said case, it was held that the reserve created for redemption reserve may be towards an ascertained liability, but it operates on Capital field and hence it could not be deducted in computing book profit. The Ld Pr. CIT also placed reliance on the decision rendered by Hon'ble Delhi High Court in the case of SREI Infrastructure Finance Ltd (ITA 371 & 372/2012 dated 13-02-2015), wherein the Hon'ble Delhi High Court considered the decision rendered by Hon'ble Supreme Court in the case of National Rayon corporation (1997)(227 ITR 764) and explained the difference between appropriation of profit and charge on profit. The Ld Pr. CIT also took support of the discussions made by the co-ordinate bench in the case of JSW Energy Ltd vs. ACIT (2013)(34 taxmann.com 152). 8. It is pertinent to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xamine the said issue in his order passed u/s 143(3) r.w.s. 147 of the Act, the Ld Pr. CIT held that the said assessment order is erroneous and prejudicial to the interests of the Revenue with the direction to the AO to re-compute the Book Profit u/s 115JB of the I T Act after disallowing the claim of reduction of amount of Rs.225.00 crores transferred to Debenture Redemption Reserve from the Net Profit. 12. The assessee is aggrieved by the revision order so passed by Ld Pr. CIT. 13. The Ld A.R submitted that the impugned revision order passed by Ld CIT(A) is barred by limitation. He submitted that the provisions of sec. 263(2) provide a time limit of two years from the end of the financial year in which the order sought to be revised was passed, for passing revision order u/s 263 of the Act. He submitted that the original assessment u/s 143(3) r.w.s. 153A of the Act was passed for AY 2009-10 on 30.12.2011. The AO has allowed deduction of Debenture Redemption Reserve while computing book profit u/s 115JB of the Act in the original assessment order. If the Ld Pr. CIT considers it to be a mistake, then the outer time limit available for revising the original assessment order was 31....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed between the assessee and Bhoomi group, i.e., it was not the case of the AO at the time of reopening of assessment that the claim of DRR has resulted in escapement of income. However, the Ld Pr. CIT has taken the view that the reassessment order passed by the AO would give right to him to revise the reassessment order u/s 263 of the Act, since the AO has failed to examine the claim of DRR in the reassessment proceedings. Hence the question that arises is whether the time limit for passing revision order on an issue, which was not subject matter of reopening, shall commence from the date of original assessment order or from the date of reassessment order. 17. The Ld A.R placed his reliance on the decision rendered by Hon'ble Bombay High Court in the case of Ashoka Buildcon Ltd (supra). In the above said case, the original assessment order was passed by the AO on 27.12.2006. The AO, thereafter, reopened the assessment on 06.03.2007 and passed the reassessment order on 27.12.2007. The AO had reopened the assessment in order to disallow the claim of set off of brought forward losses and unabsorbed depreciation. The Ld CIT initiated revision proceedings u/s 263 of the Act on 30-04-20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....laims 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 insofar 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 order of assessment dated 27-12-2006 was passed, has expired on 31-3-2009. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 CIT v. Sun Engg. Co. (P.) Ltd. [1992] 198 ITR 297 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 section 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 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 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 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eassessment proceedings under section 143(3) read with section 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." 18. In the instant case also, the Ld Pr. CIT has sought to revise an issue which was allowed in the original assessment proceedings and which was not subject matter of reassessment proceedings. It can be noticed that the Hon'ble Bombay High Court has taken into consideration Explanation 3 to sec. 147 also, while holding that the issues concluded in the original assessment proceedings shall continue to be governed by the original assessment order and the principle of merger will not apply to those issues. It can be noticed that the Hon'ble Bombay High Court has followed the decision rendered by Hon'ble Supreme Court in the case of Alagendran Finance Ltd (2007)(293 ITR 1) in this regard. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 10-3-1999 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 subjectmatter of the reassessment, as in the instant case, limitation must necessarily begin to run from the order under section 143(3). Before concluding it must also be taken note of that the second order of reassessment dated 26-3-2002 has been set aside by the Tribunal. An appeal against the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Ld D.R, on the contrary, submitted that the Ld Pr. CIT has taken the view that the decision rendered by jurisdictional High Court is per incurium, as the Hon'ble Bombay High Court has not considered that the appropriation of profit towards Debenture Redemption Reserve is on Capital account and hence not liable to be deducted for tax purposes. He further submitted that the AO has not discussed about the Debenture Redemption Reserve in the original assessment order as well as in the reassessment order. By placing reliance on the decision rendered by Hon'ble Karnataka high Court in the case of CIT vs. Infosys Technologies Ltd (2012)(17 taxmann.com 203), the Ld D.R submitted that non-discussion of the issue in the assessment order would make it erroneous and prejudicial to the interests of revenue. He further submitted that the Ld Pr. CIT has relied upon the decision rendered by Hon'ble Delhi High Court in the case of SREI Infrastructure Finance Ltd (supra), wherein it was held that the appropriation of profit out of reserve is not deductible while computing book profit. 23. In the rejoinder, the Ld A.R placed his reliance on the decision rendered by Hon'ble Bombay High Court in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n accordance with the law or against the binding precedents. In this regard, we may refer to the decision rendered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd (243 ITR 83). The relevant observations are extracted below: "Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be "erroneous in so far as it is prejudicial to the interests of the Revenue". This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 2....