Brief of the Case
In the present case the writ petition was filed by the Assessee in which the Hon’ble High Court while dismissing the writ petition held that whenever an order is made under the re-assessment, then the limitation will commence from the period of re-assessment and not from the original assessment order.
Facts of the case
The assessee is engaged in the business of manufacture and sale of Iron and Steel products. The assessee admitted total income of Rs.3099.81 Crores and claimed set off of unabsorbed depreciation of Assessment Years 1993-94 to 1998-99 aggregating Rs.3914.69 Crores. Further, the assessee admitted book profit under Section 115JB of the Act at Rs.1107.17 Crores and the tax thereon was worked out at Rs.86.81 Crores. The return of income was accordingly processed under Section 143(1) of the Act on 31-03-2006, accepting the income returned, and it resulted in refund of Rs.28.91 Crores. Thereafter, a case of the assessee was taken up for scrutiny and re-assessment was completed under Section 143(3) of the Act, vide order dated 26-03-2007, determining the total income at Rs.3127,21,34,124/- and after setting off of the unabsorbed depreciation to the extent of the income so determined, the taxable income under normal provisions was again computed at NIL. The assessment, that was completed vide order dated 26-03-2007, was then reopened by issue of a notice under Section 148 of the Act dated 20-10-2009, in respect of computation of Minimum Alternative Tax. The reassessment was finally resulted in an order, dated 19th March, 2010, under Sections 147 of the Act, raising certain additional demands. Book profit was accordingly assessed at Rs.2266.25 Crores as against Rs.1107.17 Crores admitted by the assessee. In this backdrop, the impugned notice dated 31.08.2012 under Section 154 of the Act was issued, proposing to rectify the mistake, as indicated in the notice, in the assessment completed vide order dated 19-03-2010.
Question of Law
The question of Law that arises in this case is that whether the limitation for issuing notice under Section 154 of the Act, commences from the date of assessment order under Section 143 (3) of the Act or from the order of re-assessment under Section 147 read with Section 148 of the Act?
Contention of the Assessee
According to the assessee since the dispute relates to allowing unabsorbed depreciation, in the assessment order dated 26.03.2007, under Section 143(3) of the Act, the limitation of four years under Section 154(7) would commence from the date of the assessment order dated 26.03.2007 and not from the date of re-assessment order, under Section 147 read with Section 148 of the Act, dated 19.03.2010.
It was further submitted that the proposed rectification under Section 154 of the Act for the Assessment Year 2005-06 is barred by limitation. Further, it was submitted that limitation provided in Section 154(7) of the Act would begin to run from the end of the financial year in which the order sought to be rectified was passed i.e., order dated 26-03-2007. He submitted that the last date of the previous year was 31-03-2007 and four years limitation under Section 154(7) would expire on 31-03-2011 and, therefore, notice under Section 154 of the Act issued on 31-08-2012 was hopelessly barred by limitation.
Contention of the Revenue
The ld. Counsel for the Revenue relied upon the judgment of the Supreme Court in Hind Wire Industries Ltd., Vs. Commissioner of Income Tax, where it was held that the order of assessment merges with the order of re-assessment and, therefore, the period of limitation requires to be computed from the order of reassessment. In present case, he submitted, the order of assessment under Section 143 (3) of the Act dated 26-03- 2007 merged with the order of reassessment under Section 147 dated 19-03-2010 and, therefore, the period of limitation would start to run from 31-03-2010, and would expire on 31-03-2013, and since the notice was issued on 31-08-2012, it cannot be stated to be barred by limitation. He, also, submitted that when the notice specifically speaks about reassessment order dated 19-03-2010, the Court, at this stage of the proceedings, cannot proceed on the assumption that it was in respect of the regular assessment dated 26-03-2007.
Held by the Hon’ble High Court
The Hon’ble High Court discussed various Judgments before giving its Judgment.
In the case of Hind Wire Industries Limited (supra) the Supreme Court observed that the expression from the date of order sought to be amended in Sub-section (7) of Section 154, as it stood then and observed that it is obvious that the word order has not been qualified in any way and it does not necessarily mean the original order. It can be any order including the amended or rectified order.
Then in the case of M/s.Alagendran Finance Ltd., the Supreme Court observed that whether for the purpose of computing the period of limitation envisaged under Sub-section (2) of Section 263 of the Act, the date of order of assessment or that of the reassessment, is to be taken into consideration? The Supreme Court observed that 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.
Then the Hon’ble High Court relied on the Judgment of M/s.Kundan Lal Srikishan, Mathura (U.P.) Vs. Commissioner of Sales Tax, U.P and another, where the question considered was whether for purposes of limitation, the date of order of assessment for the year 1975-76 should be the date of original assessment order, i.e., 07-02-1979 or whether it should be the date of order passed under Section 21 of the U.P. Sales Tax Act (15) 1948, i.e.18-01-1980 (for short the Sales Tax Act)?
In this case the Hon’ble Supreme Court held that once a notice is issued for the purpose of making reassessment, the earlier proceeding gets reopened and the initial order of assessment ceases to be operative. The effect of reopening the assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made on reassessment. The Supreme Court also observed that once an assessment order had been rectified and it was sought to make a further rectification of that order, the period of limitation for making such further rectification would commence not from the date of original assessment but from the date of earlier rectification order.
Then coming to the present case the Hon’ble High Court held that the assessment was reopened by issue of notice under Section 148 on 20-10-2009 and the re-assessment order was passed on 19.03.2010. Before that, the assessment under Section 143 (3) was concluded vide order dated 26.03.2007. Having regard to the position of Law settled by the Supreme Court, the effect of reopening the assessment under section 148 would be to vacate or set aside the initial order for assessment under Section 143(3) and to substitute in its place the order made under Section 147 of the Act. Therefore, the initial order for reassessment would not survive even partially, although the justification for reassessment arises in a limited field or only with respect to a part of matter covered by the initial assessment order. In other words, once a notice under Section 148 of the Act is issued for the purpose of making re-assessment, the earlier proceedings get reopened and where the re-assessment under Section 147 is done, the initial order of assessment under Section 143 (3) ceases to be operative. It was further held that the difference between the words any order in section 154 and the words the order in section 263 of the Act would also have to be noticed and read to understand the words any order to mean even an order of re-assessment or the amended/rectified order passed by an Income-Tax authority. There cannot be any doubt that the re-assessment order under Section 147 read with Section 148 of the Act is also any order which could be rectified by issuing a notice under Section 154 of the Act. In other words, the words any order in Section 154 (1) (a) of the Act would mean even the re-assessment order under Section 147 of the Act.
The limitation, therefore, would start to run from the date of re-assessment order dated 19.03.2010 and since the notice under Section 154 was issued on 31.08.2012, it was well within the time stipulated under sub-section (7) of Section 154 of the Act. Accordingly, the writ petition was dismissed.