Hotel Babylon Continental Private Limited Vs PCIT (Central) (ITAT Raipur)
The appeal before the ITAT Raipur challenged the order passed by the Principal Commissioner of Income Tax (Central), Bhopal under Section 263 of the Income-tax Act, 1961 dated 30.03.2024, which revised the reassessment order passed by the Assessing Officer under Sections 147 read with 143(3) dated 29.03.2022 for Assessment Year 2014-15. The Principal CIT had directed the Assessing Officer to frame the assessment afresh after verifying the creditworthiness of unsecured loans amounting to ₹1,88,56,508 and share capital and share premium aggregating ₹2,74,50,810 in the context of Section 68 of the Act.
The original assessment under Section 143(3) dated 29.08.2016 accepted the returned income. Subsequently, the Assessing Officer reopened the assessment under Section 147 on the basis of a belief that cash deposits of ₹36,59,500 (referred to elsewhere as ₹37,06,500) made by the assessee in its bank account during the relevant year had not been explained or reconciled with its books of account. During the reassessment proceedings, the Assessing Officer accepted the assessee’s explanation regarding the nature and source of the cash deposits and consequently made no addition on that issue while completing reassessment under Sections 147 read with 143(3) on 29.03.2022.
After the reassessment was completed, the Principal CIT examined the assessment records and observed that the Assessing Officer had failed to conduct necessary verification regarding (i) share capital and share premium of ₹2,74,50,810 received from three shareholders, and (ii) unsecured loans of ₹1,88,56,508 received from three persons. A show cause notice dated 15.03.2024 was issued under Section 263. Not being satisfied with the assessee’s explanation, the Principal CIT set aside the reassessment order and directed the Assessing Officer to reframe the assessment after conducting proper enquiries.
The Tribunal observed that the reassessment had been initiated solely on the issue of unexplained cash deposits. Since the Assessing Officer ultimately accepted the explanation relating to those cash deposits and made no addition on the issue forming the basis of reopening, the Tribunal held that he could not thereafter proceed to make independent additions or disallowances on unrelated issues. Relying upon the decisions of the Bombay High Court in CIT-5, Mumbai Vs. Jet Airways (I) Ltd. and the Chhattisgarh High Court in ACIT vs Major Deepak Mehta, the Tribunal held that once no addition was made on the issue for which reassessment had been initiated, the Assessing Officer stood divested of jurisdiction to make additions on independent issues that were not the subject matter of reopening.
The Tribunal further held that, since the Assessing Officer himself lacked jurisdiction to make additions regarding share capital, share premium and unsecured loans in the reassessment proceedings, the Principal CIT could not invoke Section 263 to revise the reassessment order on the ground that such issues had not been verified. The Tribunal observed that the Principal CIT could not treat the reassessment order as erroneous for failure to do something that the Assessing Officer could not lawfully have done in those proceedings.
The Tribunal, however, observed that the issues relating to share capital, share premium and unsecured loans had been part of the original assessment under Section 143(3) dated 29.08.2016. Therefore, if the Assessing Officer had failed to conduct necessary verification on those issues during the original assessment, the Principal CIT remained within jurisdiction to revise the original assessment order under Section 263. Referring to the decisions of the Supreme Court in CIT Vs. Alagendran Finance Ltd. and CIT Vs. Industrial Development Bank of India Ltd., the Tribunal observed that where the subject matter of reassessment is distinct from the issues sought to be revised, the relevant date for limitation under Section 263 is the date of the original assessment order and not the reassessment order.
Accordingly, the Tribunal held that the Principal CIT had exceeded the jurisdiction vested under Section 263 in revising the reassessment order on issues that were not the subject matter of reassessment. The revision order dated 30.03.2024 was held to be unsustainable and was set aside. The appeal of the assessee was allowed.
Cases Discussed
- CIT Vs. Industrial Development Bank of India Ltd. (Supreme Court), (2023) 454 ITR 811 (SC)
- CIT Vs. Alagendran Finance Ltd. (Supreme Court), (2007) 293 ITR 1 (SC)
- ACIT vs Major Deepak Mehta (Chhattisgarh High Court), (2012) 344 ITR 641 (C.G.)
- CIT-5, Mumbai Vs. Jet Airways (I) Ltd. (Bombay High Court), (2011) 331 ITR 236 (Bom)
- Commissioner of Income-Tax v. Kanubhai Engineers (P.) Ltd. (Calcutta High Court), 241 ITR 665
- Commissioner of Income-Tax v. Shri Arbuda Mills Ltd. (Supreme Court), 231 ITR 50
- Commissioner of Income Tax v. Sun Engineering Works P. Ltd. (Supreme Court), 198 ITR 297
- V. Jaganmohan Rao v. CIT and CEPT (Supreme Court), 75 ITR 373
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal filed by the assessee company is directed against the order passed by the Pr. Commissioner of Income-Tax (Central), Bhopal u/s. 263 of the Income Tax Act, 1961 (for short ‘the Act’), dated 30.03.2024, which in turn arises from the order passed by the A.O under Sec. 147 r.w.s 143(3) of the Act dated 29.03.2022 for the assessment year 2014-15. The assessee company has assailed the impugned order on the following grounds of appeal:
“1. Ground No.1: That on the facts and in the circumstances of the case, the order u/s. 163 appeared against is opposed to facts and law on several grounds and hence, the same may very kindly be quashed.
2. Ground No.2 : That having regard to the facts and circumstances of the case, Ld. Principal CIT(Central) has erred in law and on facts assuming jurisdiction in passing the order u/s.263, more so when the assessment order u/s.143(3) r.w order u/s.147 dt. 29.03.2022 was neither erroneous nor prejudicial to the interest of Revenue. Thus, order passed by Ld. Principal CIT(Central) is bad in law, erroneous and may kindly be quashed.
3. Ground 3: That on the Facts and on the circumstance of the case, Hon. Principal CIT(Central) was not justified in law in treating the Assessment Order u/s.143(3) r.w.s 148 dated 29.03.2022 as erroneous and prejudicial to the interest of the revenue directing AO to reframe the assessment novo after verifying creditworthiness of unsecured loan of Rs. 1,88,56,508/- as well as share capital & share premium of Rs. 2,74,50,810/- and their taxability in view of the provisions of section 68 of the I.T. Act.
4. Ground 4: That on the Facts and on the circumstance of the case, Hon. Principal CIT(Central) was not justified in law and fact in passing the Order u/s 263 by rejecting the submission of the Assessee mechanically based on suspicion and presumptions.
5. Ground 5: That on the Facts and on the circumstance of the case, Hon. Principal CIT(Central) was not justified in law and fact in passing the Order u/s 263 since issue w.r.t Share Capital and Share Premium has already been verified with complete documentary evidence during the course of Original Assessment Proceeding u/s 143(3).
6. Ground 6: That on the Facts and on the circumstance of the case, Hon. Principal CIT(Central) was not justified in law and fact in passing the Order u/s. 263 since issue w.r.t share capital and Share premium were not the subject matter of Reassessment proceedings u/s. 147, hence the Order passed u/s. 147 is neither prejudicial not erroneous.
7. Ground 7: That on the Facts and on the circumstance of the case, Hon. Principal CIT(Central) was not justified in law and fact in passing the Order u/s 263 when entire Books of Accounts have already been verified during the Course of Original Scrutiny Assessment/ Reassessment Proceedings.
8. Ground 8 : The assessee craves leave to add, urge, alter or withdraw any grounds before or at the time of hearing of this appeal.”
2. Original assessment in the case of the assessee company was framed by the A.O vide his order passed u/s. 143(3) of the Act dated 29.08.2016, wherein its returned income was accepted as such.
3. A.O, thereafter, holding a bonafide belief that the cash deposits of Rs.36,59,500/-(sic) made by the assessee company in its bank account during the subject year, as had surfaced in the course of survey/post-survey proceedings, were not explained and reconciled in its books of account, thus, reopened its concluded assessment u/s. 147 of the Act. The A.O vide his order passed u/s.147 r.w.s. 143(3) of the Act dated 29.03.2022 reassessed the income of the assessee company at the same income as was originally returned and accepted.
4. After framing of the re-assessment u/s. 147 r.w.s.143(3) of the Act, dated 29.03.2022, the Pr. CIT called for the assessment records. The Pr. CIT on perusal of the assessment records observed, that the A.O while reassessing the income of the assessee company, had failed to carry out necessary verification on two issues, viz. (i) a sum of Rs.2,74,50,810/- claimed by the assessee company to have been received as share capital/premium from (a) Shri Jaspreet Singh Khanuja (34614 shares); (b) Shri Hari Singh (107222 shares); and (c) Smt. Rajendra Kaur (144638 shares); AND (ii) a sum of Rs.1,88,56,508/- claimed by the assessee company to have been received as unsecured loans from three persons, viz. (a) Shri Baldev Singh : Rs.18,30,008/-; (b) Smt. Harjeet Kaur : Rs.1,47,26,500/-; and (c) Shri Jagjeet Singh : Rs.23,00,000/-.
5. Accordingly, the Pr. CIT vide “Show Cause Notice” (SCN) dated 15.03.2024 called upon the assessee company to explain as to why the order passed by the A.O u/s. 147 r.w.s. 143(3) of the Act dated 29.03.2022 being erroneous and prejudicial to the interest of the revenue may not be revised by him. As the explanation filed by the assessee did not find favour with the Pr. CIT, therefore, he vide his order passed u/s. 263 of the Act dated 30.03.2024 set-aside the assessment order with a direction to the A.O to reframe the assessment after conducting proper enquiries and affording a reasonable opportunity of being heard to the assessee company.
6. The assessee company being aggrieved with the order of the Pr. CIT u/s. 263 of the Act dated 30.03.2024 has carried the matter in appeal before us.
7. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and material available on record as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
8. Controversy involved in the present appeal lies in a narrow compass, i.e. sustainability of the order passed by the Pr. CIT u/s. 263 of the Act dated 30.03.2024.
9. We find that the concluded assessment of the assessee company was reopened by the A.O u/s. 147 of the Act based on the following “reasons to believe”:
“During the post survey proceedings, the bank account of the assessee was verified and cash deposit during the year was examined. The assessee company was provided with opportunities to explain the source and further to reconcile the same with its books of accounts, however, it failed to provide justified explanation. The findings of the survey and post survey proceedings show that the assessee company has made cash deposits of Rs.36,59,500/- during the period under consideration which are not explained and reconciled in the books of the assessee, therefore, the said amount remains unexplained in the hands of the assessee for AY 2014-15 as unaccounted income.
Sd/-
ANIL LAXMANRAO KHADSE
CENTRAL CIRCLE 2, RAIPUR
(In case the document is digitally signed please refer Digital Signature at the bottom of the page)
10. The A.O in the course of reassessment proceedings found favour with the explanation of the assessee company as regards the “nature” and “source” of cash deposits of Rs.37,06,500/- in its bank account and vide his order passed u/s. 147 r.w.s. 143(3), dated 29.03.2022 did not make any addition on the said count in its hands. Accordingly, the A.O while framing the reassessment vide his order u/s. 147 r.w.s. 143(3) dated 29.03.2022 had not made any addition with respect to the issue, based on which, the concluded assessment of the assessee company was reopened by him u/s. 147 of the Act.
11. As the A.O vide his order passed u/s. 147 r.w.s. 143(3) of the Act dated 03.2022 had not made any addition with respect to the cash deposits of Rs.36,59,500/- (sic), i.e. the issue, based on which, the case of the assessee company was reopened by him, therefore, as stated by the Ld. AR, and rightly so, he could not have thereafter proceeded with and made any independent addition/disallowance in the hands of the assessee company. Our aforesaid view is fortified by the judgments of the Hon’ble High Court of Bombay in the case of CIT-5, Mumbai Vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom) and that of the Hon’ble High Court of Chhattisgarh in the case of ACIT vs Major Deepak Mehta (2012) 344 ITR 641 (C.G.). For the sake of clarity, the observations of the Hon’ble High Court in the case of ACIT vs Major Deepak Mehta (supra) are culled out as under:
“17. We have heard learned counsel appearing for the parties, perused the pleadings and the documents appended thereto.
18. Sections 147, 148 & 152 (2) of the Act, 1961 read as under :
“147. Income escaping assessment.-If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:
Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.
Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in – respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
b. where a return of income has been furnished by the assessee 46 but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
c. where an assessment has been made, but—,
i. income chargeable to tax has been underassessed ; or
ii. such income has been assessed at too low a rate ; or
iii. such income has been made the subject of excessive relief under this Act ; or excessive relief under this Act; or
iv. excessive loss or depreciation allowance or any other allowance under this Act has been computed.
Explanation 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of Section 148.”
“148. Issue of notice where income has escaped assessment.-(1) Before making the assessment, reassessment or re-computation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139:
Provided that in a case-
a. where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and
b. subsequently a notice has been served under sub- section (2) of Section 143 after the expiry of twelve months specified in the proviso to subsection (2) of Section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub- section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice:
Provided further that in a case-
a. where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and
b. subsequently a notice has been served under clause
(ii) of sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to clause
(ii) of sub-section (2) of Section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub- section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice.
Explanation.-For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.
(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.”
“152. Other provisions.-
xxx xxx xxx xxx xxx xxx xxx xxx xxx
(2) Where an assessment is reopened under Section 147, the assessee may, if he has not impugned any part of the original assessment order for that year either under Sections 246 to 248 or under Section 264, claim that the proceedings under Section 147 shall be dropped on his showing that he had been assessed on an amount or to a sum not lower than what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account, or the assessment or computation had been properly made:
Provided that in so doing he shall not be entitled to reopen matters concluded by an order under Sections 154, 155, 260, 262 or 263.”
19. Provisions of Section 147 of the Act, 1961 makes it clear that the AO may reassess any income chargeable to tax, which has escaped assessment for any assessment or there was under assessment or the claimed excessive loss, deduction, allowance or relief in the return, subject to provisions of Sections 148 to 153. The pre- condition to reopen the assessment or recomputation is that the AO should have reason to believe that no income chargeable tax has escaped assessment or under assessment or the claimed excessive loss, deduction, allowance or relief in the return. Thereafter, a notice under Section 148 shall be served on the assessee requiring him to furnish return of the income or income of any other person in respect of which he is assessable under this Act.
20. Sub-section (2) Section 148 provides that before issuing any notice under Section 148 (1), the AO shall record his reasons for doing so. Section 152 (2) provides that the assessee may claim that the proceedings under Section 147 should be dropped on his showing that he had been assessed not lower than what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account, or the assessment or computation had been properly made.
21. Explanation 3 to Section 147, which was inserted by Finance (No.2) Act, 2009,e.r.f. 1-4-1989, provides that the AO may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under Section 147 of the Act, 1961, notwithstanding that the reasons for such issue have not been included in the reasons recorded under subsection (2) of Section 148.
22. From bare perusal of the entire provisions, it is clear that the AO should have reason to believe to reopen assessment under the provisions of Section 147 before making the assessment, reassessment or re-computation.
23. The assessee has a right to inform the AO that the income which has allegedly escaped assessment was shown and had been taken into account and the assessment had been properly made. In that event the AO has an obligation to drop the proceedings of the said income, under the provisions of Section 152 (2) of the Act, 1961.
24. Explanation 3 to Section 147 of the Act, 1961 provides that if the proceedings on the basis of reasons recorded under sub-section (2) Section 148 in the course of proceedings of the income reasons have been recorded under Section 148 (2), the other income may also be included, which has escaped assessment for the purpose of assessment or re-assessment under Section 147 of the Act, 1961, in the same proceeding.
25. The Supreme Court in Sun Engineering Works (P) Ltd. (supra) held as under :
“41….we find that in proceedings under Section 147 of the Act, the Income Tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice under Section 148 and where reassessment is made under Section 147 in respect of income which has escaped tax, the Income Tax Officer’s jurisdiction is confined to only such income which has escaped tax or has been under- assessed and does not extend to revising, 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 under-assessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income Tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject-matter of proceedings under Section 147. An assessee cannot resist validly initiated reassessment proceedings under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under Section 152(2). The words `such income’ in Section 147 clearly refer to the income which is chargeable to tax but has “escaped assessment” and the Income Tax Officers’ jurisdiction under the section is confined only to such income which has escaped assessment….”
26. In Sundaram Pillai (supra), relied on by the learned counsel appearing for the respondent, the Supreme Court has dealt with the Explanation to a statutory provision as under :
“(a) to explain the meaning and intendment of the Act itself,
b. where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve,
c. to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful,
d. an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and
(e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.”
27. The Bombay High Court in Jet Airways (supra) observed that after issuing a notice under Section 148, the income which has initially formed a reason to believe that the income has escaped assessment, but as a matter of fact has not escaped assessment. The AO cannot proceed to assess some other income independently, however, it was observed that it is open for the AO to issue a fresh notice under Section 148 and proceed thereafter.
28. The High Court of Delhi in Ranbaxy Laboratories Limited (supra), has taken the similar view.
29. In the facts of the case, the income in respect of building to the tune of Rs.20,16,383/- (sic Rs.21,16,383/-) formed reason to believe that the same had escaped assessment, as in the notice issued under Section 148, as aforestated, in the preceding para 8. In the course of proceeding other incomes were also found to have escaped assessment.
30. The assessee filed his reply under Section 152 (2) stating therein that the said income which had formed reasons in the notice under Section 148 had not escaped assessment, as the same was disposed of in the same assessment year itself and for that no details were given.
31. The Tribunal has also come to the conclusion that, in fact, there was no escapement of assessment or no assessment in respect of the said head, which formed the reason to believe in the notice. In respect of other incomes no notice was issued and the assessee had no opportunity to put forward his case under Section 152 (2) of the Act, 1961, to avail benefit of the said Section for dropping the proceedings. Thus, the Revenue cannot take advantage of the Explanation 3 to Section 147, as the same is not available in the facts of the case.
32. Explanation 3 is applicable only in the event the income was formed opinion in the notice has been found correct and the proceeding in the respect of the said income was not dropped under Section 152 (2) of the Act, 1961.
33. The Supreme Court in Sun Engineering Works (P) Ltd. (supra) held that the issue was in respect of inclusion of other incomes in addition to that item or items which have led to the issuance of notice under Section 148 and it was found that the AO was right in including other incomes. On the issue as to when the item or items which have led to the issuance of notice under Section 148 has been dropped under Section 152 (2), what would be the stand of the AO was not in issue in the said case. It was further held that the AO cannot reopen the entire assessment except the unescaped income for which the proceedings have been initiated.
34. The Supreme Court in Sundaram Pillai (supra), had held, inter alia, that an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment.
35. In the case on hand, the main object and purpose of Section 147 read with Section 148 is that if there is any escaped assessment and the AO has reason to form the opinion a notice must be given to the assessee to file returns or to show that there was no escaped income and under Section 152 (2) the proceedings may be dropped. In that context, explanation provides that along with the proceedings for the escaped income which had formed reason to believe and the assessee has been properly intimated to show his case, proceedings of the other incomes may also be examined along with the said income.”
12. We are of the view that now when the A.O had not made any addition with respect to the cash deposits of Rs.36,59,500/- (sic) made in the bank account of the assessee company during the year under consideration, i.e. the issue, based on which, its case was reopened by him u/s. 147 of the Act, and thus, was divested of his jurisdiction from making any further independent addition /disallowance, therefore, the Pr. CIT could not have held the re-assessment order so passed by him as erroneous for the reason that he had failed to carry out verification on such independent issues.
13. We, thus, based on our aforesaid observations, are of the view that now when the A.O had not made any addition with respect to the cash deposits of Rs.36,59,500/- (sic), therefore, he as per the mandate of law was divested of his jurisdiction to make any addition with respect to the aforesaid two independent issues, viz. (i) a sum of Rs.2,74,50,810/- claimed by the assessee company to have been received as share capital/premium from (a) Shri Jaspreet Singh Khanuja (34614 shares); (b) Shri Hari Singh (107222 shares); and (c) Smt. Rajendra Kaur (144638 shares); AND (ii) unsecured loans of Rs.1,88,56,508/- claimed by the assessee company to have been received from three persons, viz. (a) Shri Baldev Singh : Rs.18,30,008/-;(b) Smt. Harjeet Kaur: Rs.1,47,26,500/-; and (c) Shri Jagjeet Singh : Rs.23,00,000/-.
14. Carrying our observations further, we are of the view that now when the A.O himself was divested of his jurisdiction from making any addition with respect to the aforesaid two independent/stray issues, the Pr. CIT, thus, could not have stepped in and held the re-assessment order passed by him u/s. 147 r.w.s. 143(3) dated 29.03.2022 as erroneous for the reason that he had failed to carry out verification as regards the said two issues and made additions on the said count in the hands of the assessee company, i.e. had failed to do something which he could not have lawfully done.
15. At this stage, we may herein observe that the A.O in the backdrop of the facts involved in the present case was divested of his jurisdiction to make additions on the aforesaid two issues, viz. (i) sum of Rs.2,74,50,810/- that was received by the assessee company as share capital/premium and (ii) unsecured loans of Rs.1,88,56,508/- received by the assessee company from three persons.
Accordingly, the Pr. CIT could not have assumed jurisdiction u/s. 263 of the Act, and held the order passed by the A.O u/s. 147 r.w.s. 143(3), dated 29.03.2022 as erroneous on the ground that the A.O while framing the reassessment had failed to verify the aforesaid issues which were not the subject matter of the reassessment order. At the same time, we may observe that as both the aforesaid issues, viz. (i) unsecured loans received by the assessee company : Rs.1,88,56,508/-; and (ii) share capital/premium received by the assessee company : Rs.2,74,50,810/- were the subject matter of the “original assessment”, therefore, the Pr. CIT remained well within his jurisdiction to have revised the original assessment order on the aforesaid issues. As the failure of the A.O to carry out necessary verifications on the aforesaid issues was a subject matter of the original assessment that was framed by him u/s.143(3) of the Act, dated 29.08.2016, thus, the Pr. CIT was vested with the requisite jurisdiction to revise the said original assessment u/s. 263 of the Act. Accordingly, it was the order u/s. 143(3) of the Act dated 29.08.2016 that could have been revised by the Pr. CIT u/s. 263 of the Act for setting right the failure of the A.O to carry out necessary verifications on the aforesaid issues which, thus, had rendered the said original assessment order as erroneous in so far it was prejudicial to the interest of the revenue. Our aforesaid view is supported by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Alagendran Finance Ltd., (2007) 293 ITR 1 (SC) wherein, the Hon’ble Apex Court had observed as under:
“6. Before embarking upon the rival contentions of the parties raised before us, we may notice the relevant part of Section 263 of the Act which is as under:
“263. Revision of orders prejudicial to revenue –
(1) The Commissioner may call for and examine the record of any proceeding under this 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, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub- section,-
a. *** *** ***
b. *** *** ***
c. where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) 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.
(3) Notwithstanding anything contained in sub- section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.
Explanation.-In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
7. A bare perusal of the order passed by the Commissioner of Income Tax would clearly demonstrate that only that part of order of assessment which related to lease equalization fund was found to be prejudicial to the interest of the Revenue. The proceedings for reassessment have nothing to do with the said head of income. Doctrine of merger, therefore, would not apply in a case of this nature.
8. Furthermore, Explanation (c) appended to Sub-section (1) of Section 263 of the Act is clear and unambiguous as in terms thereof doctrine of merger applies only in respect of such items which were the subject matter of appeal and not which were not. The question came up for consideration before this Court in Commissioner of Income Tax v. Sun Engineering Works P. Ltd. [198 ITR 297]. Therein the assessee raised a contention that once jurisdiction under Section 147 of the Act is invoked, the whole assessment proceeding became reopened, which was negatived by the court opining:
“Section 147, which is subject to Section 148, divides cases of income escaping assessment into two clauses i.e. viz. (a) those due to the non- submission of return of income or non-disclosure of true and full facts and (b) other instances. Explanation (1) defines as to what constitutes escape of assessment. In order to invoke jurisdiction under Section 147(a) of the Act, the ITO must have reason to believe that some income chargeable to tax of an assessee has escaped assessment by reason of the omission or failure on the part of the assessee either to make a return under Section 139 for the relevant assessment year or to disclose fully and truly material facts necessary for the assessment for that year. Both the conditions must exist before an ITO can proceed to exercise jurisdiction under Section 147(a) of the Act. Under Section 147(b) the Income-tax Officer also has the jurisdiction to initiate proceedings for reassessment where he has reason to believe, on the basis of information in his possession, that income chargeable to tax has been either under- assessed or has been assessed at too low a rate or has been made the subject of excessive relief under the Act or excessive loss or depreciation allowance has been computed. In either case whether the Income-tax Officer invokes his jurisdiction under Clause (a) or Clause (b) or both, the 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 but the Income-tax Officer has, on the basis of information in his possession, reason to believe that there has been under assessment on account of the existence of any of the grounds contemplated by the provisions of Section 147(b) read with the Explanation (I) thereto.”
9. We may at this juncture also notice the decision of this Court in Hind Wire Industries Ltd (supra) wherein the decision of this Court in V. Jaganmohan Rao v. CIT and CEPT [75 ITR 373] interpreting the provisions of Section 34 of the Act was reproduced which reads as under:
“Section 34 in terms states that once the Income- tax officer decides to reopen the assessment, he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22, the previous
underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b), the Income-tax Officer had not only the jurisdiction, but it was his duty to levy tax on the entire income that had escaped assessment during that year.”
10. There may not be any doubt or dispute 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 but the same would not mean that even when the subject matter of reassessment is distinct and different, the entire proceeding of assessment would be deemed to have been reopened.
11. In Sun Engineering Works P. Ltd (supra) also, V. Jaganmohan Rao (supra) was noticed stating:
“The principle laid down by this Court in Jaganmohan Rao’s case, therefore, is only to the extent that once an assessment is validly reopened by issuance of a notice under Section 22(2) of the 1922 Act (corresponding to Section 148 of the Act) the previous under assessment is set aside and the ITO has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous yearThe judgment in Jaganmohan Rao’s case, therefore, cannot be read to imply as laying down that in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim re-computation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise 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 but 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 interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings.”
It was furthermore held:
“As a result of the aforesaid discussion, we find that in proceedings under Section 147 of the Act, the Income Tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice under Section 148 and where reassessment is made under Section 147 in respect of income which has escaped tax, the Income Tax Officer’s jurisdiction is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, 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 under- assessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income Tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject-matter of proceedings under Section 147.”
12. We may at this juncture also take note of the fact that even the Tribunal found that all the subsequent events were in respect of the matters other than the allowance of ‘lease equalization fund’. The said finding of fact is binding on us. Doctrine of merger, therefore, in the fact situation obtaining herein cannot be said to have any application whatsoever. It is not a case where 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 nature, the doctrine of merger will have no application.
14. The Madras High Court in A.K. Thanga Pillai (supra), in our opinion, has rightly considered the matter albeit under Section 17 of the Wealth Tax Act, 1957 which is in pari materia with the provisions of the Act. Relying on Sun Engineering Works P. Ltd (supra), it was held:
“Under section 17 of the Wealth-tax Act, 1957, even as it is under section 147 of the Income-tax Act, proceedings for reassessment can be initiated when what is assessable to tax has escaped assessment for any assessment year. The power to deal with underassessment and the scope of reassessment proceedings as explained by the Supreme Court in the case of Sun Engineering [1992] 198 ITR 297, is in relation to that which has escaped assessment, and does not extend to reopening the entire assessment for the purpose of redoing the same de novo. An assessee cannot agitate in any such reassessment proceedings matters forming part of the original assessment which are not required to be dealt with for the purpose of levying tax on that which had escaped tax earlier. Cases of underassessment are also treated as instances of escaped assessment. The order of reassessment is one which deals with the assessment already made in respect of items which are not required to be reopened, as also matters which are required to be dealt with in order to bring what had escaped in the earlier order of assessment, to assessment. An assessee who has failed to file an appeal against the original order of assessment cannot utilise the reassessment proceedings as an occasion for seeking revision or review of what had been assessed earlier. He may only question the extent of the reassessment in so far as the escaped assessment is concerned. The Revenue is similarly bound.”
The same principle was reiterated by a Division Bench of the Calcutta High Court in Commissioner of Income-Tax v. Kanubhai Engineers (P.) Ltd. [241 ITR 665].
15. 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 its revisional jurisdiction reopened the order of assessment only in relation to lease equalization fund which being not the subject of the 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. 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.”
(emphasis supplied by us)
Also, we find that the aforesaid view had been reiterated by the Hon’ble Apex Court in the case of CIT Vs. Industrial Development Bank of India Ltd. (2023) 454 ITR 811 (SC).
16. Accordingly, in the backdrop of our aforesaid observations read a/w. the aforementioned judgements of the Hon’ble Supreme Court, we are of the view that it is only in a case where the issues before the Commissioner at the time of exercising powers under Section 263 of the Act relate to the subject matter of reassessment, the same would bring the order of reassessment within the realm of the jurisdiction of the Commissioner u/s.263 of the Act. Also, the period of limitation for exercising jurisdiction u/s. 263 of the Act would start from the date of the re-assessment order. However, if the subject matter of the re-assessment is distinct and different, as in the present case before us, then in that case the relevant date for the purpose of determination of period of limitation for exercising powers under Section 263 of the Act would be the date of the original assessment order.
17. We, thus, in terms of our aforesaid observations, are of the view that the Pr. CIT had exceeded the jurisdiction vested with him u/s. 263 of the Act with respect to the aforesaid two issues, viz. (i) sum of Rs.2,74,50,810/- received by the assessee company as share capital/premium AND (ii) sum of Rs. 1,88,56,508/-received by the assessee company as unsecured loans from three persons, as the same did not form the subject matter of the reassessment order passed the A.O u/s. 147 r.w.s. 143(3), dated 29.03.2022. Accordingly, the revision of the order passed by the A.O u/s. 147 r.w.s. 143(3) dated 29.03.2022 by the Pr. CIT u/s. 263 of the Act dated 30.03.2024 being not as per the mandate of law cannot be sustained and is liable to be struck down.
18. In the result, appeal of the assessee company is allowed in terms of our aforesaid observations.
Order pronounced in open court on 04th day of July, 2024.
