CIT Vs Bharti Airtel Limited (Delhi High Court)
The Delhi High Court dismissed the Revenue’s appeal for Assessment Year 2005-06 in view of the Supreme Court’s decision in Commissioner of Income Tax versus Alagendran Finance Limited, (2007) 293 ITR 1 (SC). The assessee’s return was originally assessed under Section 143(3) on 31 December 2007 after setting off brought forward losses and unabsorbed depreciation. An order under Section 154 read with Section 143(3) dated 7 March 2008 subsequently assessed income under the normal provisions as nil and determined book profits under Section 115JB. Thereafter, reassessment proceedings under Section 147 culminated in an order dated 10 December 2009 making additions relating to non-deduction of tax at source on interest paid to ABN Amro Bank, Stockholm Branch and ESOP expenses, while also discussing the set-off of brought forward losses and unabsorbed depreciation.
Subsequently, the Commissioner passed an order under Section 263 on 24 March 2011 on the alleged failure to deduct tax under Sections 194H and 194J, invoking Section 40(a)(ia). The issue before the High Court was whether the limitation under Section 263(2) should be computed from the original assessment order dated 31 December 2007 or the reassessment order dated 10 December 2009.
The High Court observed that the issues forming the basis of the Section 263 order had not been examined in the reassessment proceedings, which dealt with different matters. Relying on the Supreme Court’s decision in Alagendran Finance Limited, the Court held that where the subject matter of revision is distinct from the issues considered in reassessment, the limitation under Section 263(2) begins from the original assessment order and not from the reassessment order. It also noted that the doctrine of merger would not apply to matters not forming part of the reassessment. The Court referred to the Supreme Court’s observations that reassessment sets aside the original assessment only to the extent of matters covered by reassessment and not with respect to issues remaining outside its scope.
Holding that the Commissioner’s order under Section 263 was barred by limitation, the High Court dismissed the Revenue’s appeal.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
This appeal by the Revenue, which pertains to Assessment Year 2005-06, has to be dismissed in view of the authoritative pronouncement of the Supreme Court in Commissioner of Income Tax versus Alagendran Finance Limited, (2007) 293 ITR 1 (SC).
2. Relevant facts in brief may be noticed. Return filed by the assessee for Assessment Year 2005-06 was taken up for scrutiny and income was assessed at Rs.860,18,30,950/- vide assessment order dated 31st December, 2007 after the setting off of brought forward loses and unabsorbed depreciation amounting to Rs.1941,17,35,146/-.
3. There appears to be another order under Section 154 read wi Section 143(3) dated 7th March, 2008, where the income under the normal provisions was assessed as “nil” after setting off brought forward losses and unabsorbed depreciation and the book profits were assessed at Rs.1724,82,75 449/- under Section 115JB of the Act.
4. Subsequently, the Assessing Officer issued notice under Section 147 and an order under Section 147 read with Section 143(3) dated 10th December, 2009 was passed. In the re-assessment order, two additions were made in respect of non-deduction of tax at source on payment of interest to ABN Amro Bank, Stockholm Branch. The second addition was made on account of ESOP expenses. The said order also discusses set off or brought forward loss or unabsorbed depreciation.
5. Subsequently, the Commissioner of Income Tax Delhi – I made an order under Section 263 of the Act dated 24th March, 2011 for failure to deduct TDS under Section 194H on free air time provided to distributors and under Section 194J on roaming charges paid to other network operators. The Commissioner invoked Section 40(a) (ia) to make the said disallowance.
6. Section 263(2) of the Act postulates and prescribes time limit of two years as it stipulates that no order in revision will be passed by the Commissioner after expiry of two years from the end of the financial year in which the order sought to be revised was passed.
7. The question raised is whether the first order under Secti 143(3) dated 31st December, 2007 or the second order under Section 147 read with Section 143(3) dated 10th December, 2009 will be the starting point of limitation under Section 263(2) of the Act. If the first order dated 31st December, 2007 is taken as the starting point, the order passed under Section 263, dated 24th March, 2011 is barred by limitation, but if we treat the second order dated 10th December, 2009 under Section 147/143(3) as the starting point, the order passed on 24th March, 2011 will be within time.
8. It is factually correct and cannot be disputed that the two aspects/questions, which have been dealt with and additions which have been made in the order under Section 263 dated 24th March, 2011, have not been dealt with or examined in the second assessment or the re-assessment order dated 10th December, 2009. The second order or the re-assessment order is on different aspects. In these circumstances, the decision of the Supreme Court in Alagendran Finance Limited (supra) is clearly applicable and the following ratio is binding on us:-
“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 equalisation 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.”
9. In the said case, second or re-assessment order was passed under Section 147 of the Act. Order under Section 263 passed by the Commissioner was held to be barred by limitation as the subject matter of additions made in the said order were not dealt with in the reassessment order. Thus doctrine of merger it was held would not apply and limitation would begin from the date of the first or original assessment order. It has been held that once reassessment order was passed, original underassessment was set aside, to the extent of underassessment but not in respect of matters covered by the original assessment and not subject matter of reassessment proceedings or order. Earlier judgments in Hind Wire Industries Limited versus Commissioner of Income Tax, (1995) 212 ITR 639 (SC), Commissioner of Income Tax vs. Sun Engineering Works Private Limited (1992) 198 ITR 297 (SC) and other cases, were examined before the said opinion and ratio was expounded.
The appeal is accordingly dismissed.
