Revisionary proceedings u/s 263 against reassessment proceedings are confined to reasons recorded u/s 148

Facts:

The assessment year involved in this case is AY 2009-10. The regular assessment u/ 143(3) r.w.s. 144C was completed on 16/01/2014 for the said assessment year. Subsequently, the Ld. Assessing Officer initiate the reassessment proceedings of very same assessment year during the FY 2016-17. Reasons were recorded with respect to disallowance of claim of the assessee u/s 80IA and 80IB on account of;

• captive power plant does not qualify as an “industrial undertaking”
• no separate books of accounts were maintained

Thereafter the reassessment proceedings were finalized on 31/12/2016 u/s 143(3) r.w.s 147 of the Act.

Subsequently, the Ld. PCIT examined the records. On examination, he issued notice u/s 263 of the Act on 26/2/2019 asking assessee to show cause that why order passed u/s 143(3) on 30/12/2016  (reassessment order) passed by the learned assessing officer shall not be treated as erroneous and prejudicial to the interest of revenue.

The reasons for revisionary proceedings was that as per the volume II/A of the Justice M B Shah commission of enquiry, report on illegal mining of Iron Ore manganese dated June 13, page number 35, the production of the assessee for the financial year 2008-09 (relevant to assessment year 2009-10) has been 2205780 metric ton from TRB Iron Ore Mines. During assessment proceedings (reassessment proceedings), the AO did not make specific enquiries to ascertain whether the production as mentioned in the justice Shah commission of enquiry report from the TRB mines has been duly incorporated in the books of accounts of the assessee for the relevant assessment year as per the judgment of the honourable Punjab and Haryana High Court in Majinder Singh Kang V CIT 344 ITR 358. Thereafter, on 30 March 2019, the learned Principle Commissioner of Income Tax passed order under Section 263 of the Income Tax, 1961.

Assessee’s arguments

The assessee challenged the order u/s 263 of the Ld. PCIT before the Tribunal. The counsel of the assessee argued that;

• PCIT is not sustainable in law for the reason that assessment u/s 143(3) of the Act, which was subject matter of revision by the learned PCIT is barred by limitation u/s 263 of the Act.
• He submitted that reopening of the assessment was made for different purposes, whereas the revision is proposed of the reassessment order on altogether different grounds, which were not part of the reasons for reopening of the assessment.
• He further submitted that as the issues on which revision is sought were not at all the reasons for which assessment was reopened. Therefore, limitation for passing order u/s 263 of the act on the issues which were not part of reassessment proceedings, should run from the original order passed u/s 143(3) of the Act and not from the date of the passing of reassessment order.

Held by Tribunal

The Tribunal relied upon the following judgments;

• CIT V Algandrean Finance Limited [(2007) 75 CCH 0720 ISCC(2007) 211 CTR 0069, (2007) 293 ITR 0001, (2007) 162 TAXMAN 0465
• INDIRA INUDSTRIES vs. PRINCIPAL COMMISSIONER OF INCOME TAX( 2018) 102 CCH 0078 ( ChenHC) (2018) 169 DTR 0171 (Mad), (2018) 305 CTR 0314 (Mad)
• LG ELECTRONICS INDIA PVT. LTD. vs. PRINCIPAL COMMISSIONER OF INCOME TAX(2016) 96 CCH 0284 AllHC, (2016) 143 DTR 0105 (All), (2016) 290 CTR 0283 (All), (2016) 388 ITR 0135 (All)

And accordingly, the Tribunal held that;

“19 As in the present case before us, issues subject to revision were pertaining to original assessment and not the reopened assessment; the limitation should also start from the original assessment. In this case as original assessment order u/s 143(3) of the act was passed on 16.01.2014, the revision thereof could have been taken up to 31.3.2016. Impugned order u/s 263 of the act was passed on 26/2/2019, therefore it is clearly beyond the limitation prescribed u/s 263(2) of the Act. Thus, the impugned order is barred by limitation and hence quashed.”

Summary:

The reasons recorded for reopening of the assessee are very foundation of the reassessment proceedings. However, same analogy can also be applied in ongoing ‘Limited Scrutiny’ in which the AO has been directed to examine the only specified limited issues and this stand of the assessee can ignite the litigation.