Karnataka Power Corporation Limited Vs ACIT (ITAT Bangalore)
Hon’ble jurisdictional High Court in the case of M/s. Kothari Industrial Corporation Limited v. The Agricultural Income Tax Officer reported in 230 ITR 306 had held that the period of limitation for a second rectification should be reckoned from the date of original order, if subject matter of second rectification is different from subject matter of the first rectification. The relevant finding of the Hon’ble jurisdictional High Court reads as follow:-
“16. Where an order of an authority is rectified by the said authority in regard to a specified subject or issue, the period of limitation for a second rectification should be reckoned from the date of the original order, if the subject-matter of the second rectification is different from the subject-matter of the first rectification. If the second rectification is, however, in regard to the subject- matter of the first rectification, the period of limitation should be reckoned from the date of the first rectification order.
17. Let me examine the impugned order in the light of the aforesaid principles. As the subject-matter of these petitions are subsequent orders passed by the authority who passed the original orders and are not orders of any appellate or revisional authority, the doctrine of merger is inapplicable. The original orders were passed on 29th July, 1985. There were rectified on 9th Jan., 1986, in regard to non-allowance of depreciation at the instance of petitioner. The assessing authority passed a second set of rectification orders dt. 13th March, 1991, in pursuance of notices dt. 21st Aug., 1990, in regard to six matters, which had nothing to do with the subject-matter of the first order of rectification dt. 9th Jan., 1986, which related to depreciation. He again passed a third set of rectification orders dt. 3rd May, 1991, in pursuance of notices dt. 26th Nov., 1990 in regard to disallowance of interest, which is also a matter which had nothing to do with the subject-matter of the first rectification dt. 9th Jan., 1986. Therefore, to find out whether the second and third rectifications were in time, the period of five years has to be calculated from the date of original orders (29th July, 1985) and not from the date of the first order of rectification (9th Jan., 1986). The contention that the original order of assessment dt. 29th July, 1985, merged with the first order of rectification dt. 9th Jan., 1986, and, therefore, the period of five years should be calculated from 9th Jan., 1986, and not from 29th July, 1985, is not tenable as there is no ‘merger’ in regard to orders of rectification. Even on applying the decision of the Supreme Court in International Cotton Corporation (supra), the date of the first order of rectification (9th Jan., 1986) will be the starting point only if the second rectification related to subject-matter of the first rectification. If the subject-matter of the subsequent rectification is not the subject-matter of the first rectification, then necessarily the five years period will have to be calculated from the order of assessment dt. 29th July, 1985. The subject-matter of second and third rectifications which were initiated by the notice dt. 21st Aug., 1990 and 26th Nov., 1990, resulting in the orders dt. 13th March, 1991, and 3rd May, 1991, have no connection to the subject-matter of the rectification order dt. 9th Jan., 1986. The initiation of rectification proceedings by notices dt. 21st Aug., 1990, and 26th Nov., 1990 and orders dt. 13th March, 1991, and 3rd May, 1991, are, therefore, barred by time. Hence, these petitions are allowed. Annexures ‘E’, ‘E1 ‘ and ‘E2’, dt. 13th March, 1991 in WP Nos. 11430-3211991 and Annexures ‘M’, ‘M1’, and ‘M2’, dt. 3rdMay, 1991, in WPNos. 13866-6811991, are hereby quashed.”
The Hon’ble Bombay High Court in the case of CIT v. Sakseria Cotton Mills Ltd. reported in 124 ITR 570 (Bom.) has also taken a similar view. The relevant finding of the Hon’ble Bombay High Court reads as follow:-
“13. We are, therefore, of the view that in so far as the grant of rebate to the assessee was concerned, the order of the ITO dt. 23rd Nov., 1956, was not in any way affected by the order of the AAC dt. 10th March, 1961. That part of the order of the ITO remained intact. It continued to have an independent existence. It had not merged with the order of the AAC. Any rectification made in respect of that part of the order was required to be made within four years from 23rd Nov., 1956. The limitation for exercising powers of rectification under s. 154 could not, therefore, commence from 10th March, 1961, when the ITO made ‘an order which was restricted only to carrying out the directions given by the AAC. It is obvious, therefore, that the rectification order made on 8th March, 1965, was clearly beyond a period of four years provided by s. 154(7) of the I.T.Act, 1961.”
In the light of our aforesaid reasoning and judicial pronouncements cited supra, we hold that since computation of deduction u/s 80IA of the I.T.Act was never the subject matter of issue / dispute in any proceeding u/s 263 of the I.T.Act, u/s 254 of the I.T.Act or in A.O.’s order u/s 143(3) r.w.s. 254 of the I.T.Act, limitation u/s 154(7) of the I.T.Act, would have to be reckoned from the date of original assessment order dated 10.02.2005 passed u/s 143(3) of the I.T.Act. Therefore, rectification order dated 28.03.20 12 would be barred by limitation u/s 154(7) of the I.T.Act. It is ordered accordingly.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 22.11.2016. The relevant assessment year is 2002-2003.
2. The grounds raised read as follow:-
1. The Order of the learned Commissioner of Income-tax [Appeals] in so far as it is against the Appellant is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant’s case.
2. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the assumption of jurisdiction by the learned assessing officer under section 154 of the Act is barred by limitation and hence the entire order passed by the learned assessing officer under the provisions of section 154 of the Act is bad in law and the same requires to be cancelled on the facts and circumstances of the case.
3. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the order sought to be rectified under section 154 of the Act is an order passed by the learned assessing officer pursuant to the directions of the Hon’ble Tribunal which was passed under section 1 43[3] r. w. s. 254 of the Act and the issue which was proposed to be rectified was never a subject matter of appeal before the learned authorities and consequently the learned assessing officer exceeded his jurisdiction which is not permissible in law on the facts and circumstances of the case.
4. The learned Commissioner of Income-tax [Appeals] is not justified in law in confirming the order of rectification passed by the learned assessing officer under section 154 of the Act, without appreciating that in the guise of rectifying the order dated 20/10/2011, has attempted to rectify already concluded issues in the original order of assessment passed under section 143[3] of the Act dated 10/02/2005, under the facts and circumstances of the case.
5. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the issue involved in the impugned order of rectification passed by the learned assessing officer involved long drawn process of reasoning and is highly debatable and thereby not appreciating the ratio of the decision as laid out by the Apex Court in the case of T.S.Balaram, Income-Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers reported in 82 ITR 50 on the facts and circumstances of the case.
6. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above.
7. In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.”
3. The brief facts of the case are as follow:
The assessee is a public sector undertaking established under the Companies Act, 1956. It is engaged in the business of generation of power. For the assessment year 2002-2003, the return of income was filed on 30.10.2002 declaring income of Rs.246,40,54,707 against which the unabsorbed depreciation of earlier year was set off and taxable income was arrived at `NIL’. The assessee-company had computed its book profit u/s 115JB of the I.T.Act at Rs.228,92,84,853. The assessment u/s 143(3) of the I.T.Act was completed by determining the total income at Rs.247,24, 14,312 and this was set off with unabsorbed depreciation. The book profit of Rs.228,92,84,853 was brought to tax u/s 1 15JB of the I.T.Act. Subsequently, the CIT vide order dated 28.03.2007 passed u/s 263 of the I.T.Act, set aside the assessment order dated 10.02.2005, and directed the A.O. to compute the income after disallowing two expenditure claimed under the head `donation of asset’ and `loss of asset’ amounting to Rs.2, 18,08,792 and Rs.2, 19,73,292, respectively, since according to the CIT, these were capital expenditure. Aggrieved by the revisionary order of the CIT passed u/s 263 of the I.T.Act, the assessee preferred an appeal to the Tribunal. The Tribunal vide order dated 28.03.2007 in ITA No.584/Bang/ 2009 vacated the findings of the CIT and directed the Assessing Officer to look into the issue afresh whether the expenditure claimed by the assessee are allowable or not. The A.O., pursuant to the order of the Tribunal, called for details as regards the item claimed as revenue expenditure. After examining the details submitted by the assessee, the AO passed order dated 20.10.2011 u/s 143(3) r.w.s. 254 of the I.T.Act. The expenditures were disallowed by the A.O. by treating it as capital expenditure. As against the order of the A.O. passed u/s 143(3) r.w.s. 254 of the I.T.Act, it is stated that the assessee has filed further appeal before the CIT(A) and same is pending adjudication.
4. In the meanwhile, the Assessing Officer issued notice of rectification u/s 154 of the I.T.Act proposing to rectify the A.O.’s order dated 20.10.2011 passed u/s 143(3) r.w.s. 254 of the I.T.Act. The reason for the A.O. to issue notice u/s 154 of the I.T.Act was that deduction u/s 80IA of the I.T.Act amounting to Rs.80.55 crore has been allowed before computing gross total income. The assessee filed objection to the notice issued u/s 154 of the I.T.Act, stating that rectification proceedings initiated is time barred. On merits, it was submitted that the issue sought to be rectified is a debatable issue and not amenable to proceedings u/s 154 of the I.T.Act. However, the Assessing Officer rejected the contentions raised by the assessee and passed an order u/s 154 of the I.T.Act on 28.03.2012. The A.O. computed the income in the following manner:-
