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Case Law Details

Case Name : The Tata Power Company Limited Vs PCIT (ITAT Mumbai)
Appeal Number : I.T.A. No. 1307/Mum/2020
Date of Judgement/Order : 29/07/2021
Related Assessment Year : 2010-11

The Tata Power Company Limited Vs PCIT (ITAT Mumbai)

Conclusion: Any order of the subordinate authority which could have been considered as erroneous and prejudicial to the interest of revenue in allowing assessee’s claim of deduction under section 80IA, either due to lack of enquiry or otherwise, was the original assessment order passed under section 143(3) r.w.s. 144C and not the re-assessment order. PCIT had proceeded to revise the assessment order passed under section 143(3) r.w.s. 147 to get over the hurdle of limitation which was impermissible.

Held: CIT invoked his revisional powers by stating that the assessment order passed under section 143(3) r.w.s. 147 was erroneous and prejudicial to the interest of revenue since AO had not examined and disallowed the excess deduction claimed by assessee under section 80IA. It was held that a reading of the original assessment order would reveal that the issue relating to deduction claimed under section 80IA was a subject matter therein. In fact, the draft assessment order passed by AO on the issue of deduction claimed under section 80IA was disputed before DRP and after passing of the final assessment order, the issue relating to claim of deduction under section 80IA was now pending in appeal before the Tribunal. Therefore, any attempt by AO to deal with such issue in re-assessment proceedings would have amounted to review of the original assessment order, which was impermissible. Thus, the assessment order passed under section 143(3) r.w.s. 147 could not be considered as erroneous and prejudicial to the interest of revenue to subject it to proceeding under section 263. If, at all, any order of the subordinate authority which could have been considered as erroneous and prejudicial to the interest of revenue in allowing assessee’s claim of deduction under section 80IA, either due to lack of enquiry or otherwise, was the original assessment order passed under section 143(3) r.w.s. 144C and not the re-assessment order. Therefore, the period of limitation prescribed under section 263(2) would run from the original assessment order. Being conscious of the fact that the original assessment order could not be revised under section 263 due to bar of limitation, as provided under sub section (2) of section 263 PCIT, as it appeared, had proceeded to revise the assessment order passed under section 143(3) r.w.s. 147 to get over the hurdle of limitation. This was impermissible. Thus, the impugned order of PCIT revising the order passed under section 143(3) r.w.s. 147 was unsustainable.

REASSESSMENT - text on the background of the office table. Business concept

FULL TEXT OF THE ORDER OF ITAT MUMBAI

Captioned appeal has been filed by the assessee calling into question the validity of the order dated 28-01-1010 passed by learned Principal Commissioner of Income Tax-2 (PCIT, hereinafter), Mumbai under section 263 of the Income-tax Act, 1961 for the assessment year 2010-11.

2. Briefly the facts are, the assessee, a resident company, is stated to be engaged in the business of generation and distribution of electricity. For the assessment year under dispute, assessee filed its return of income on 01-10-2010 declaring total income of Rs.364,88,81,004/- under the normal provisions and book profit of Rs.1099,44,00,614/- under section 115JB of the Act. The return of income filed by the assessee was revised by filing a fresh return of income on 30­03-2012 declaring total income of Rs. 251,22,81,103/- under the normal provisions and book profit of Rs.1099,44,00,614/- under section 115JB of the Act. The assessing officer passed a draft assessment order in case of the assessee under section 144C(1) of the Act which was finalized in pursuance to the directions learned Dispute Resolution Panel (DRP), vide assessment order passed under section 143(3) r.w.s. 144C(13) of the Act on 30-01-2015. As it appears, against the final assessment order so passed, the assessee had preferred appeal before the Tribunal. However, we are not concerned with that in the present appeal. When the matter stood thus, the assessing officer, having reason to believe that the assessee was wrongly allowed deduction towards expenditure incurred of Rs.68,62,780/- for furniture and tools while completing the original assessment resulting in escapement of income, reopened the assessment under section 147 of the Act. Ultimately, the assessing officer passed an assessment order under section 143(3) r.w.s. 147 of the Act on 11-12-2017 disallowing the expenditure of Rs.68,62,780/-.

3. After completion of assessment under section 147 of the Act, learned PCIT, in purported exercise of his powers under section 263 of the Act, called for and examined the assessment records of the assessee for the impugned assessment year. After examining the records, he was of the view that the assessment order passed under section 143(3) r.w.s. 147 of the Act is erroneous and prejudicial to the interest of revenue, as, the assessing officer had not examined and disallowed the excess deduction claimed by the assessee under section 80IA of the Act. According to learned PCIT, while completing the original assessment, deduction under section 80IA of the Act was allowed in respect of units and not undertaking. He observed, form 10CCB furnished by the assessee for claiming deduction under section 80IA of the Act does not reveal whether the assessee has maintained separate profit & loss account and balance-sheet for individual units. According to learned PCIT, while completing the assessment under section 143(3) r.w.s. 147 of the Act, the assessing officer neither enquired into nor examined the availability of deduction under section 80IA of the Act in respect of the units, as per form 10CCB. After issuing a show cause notice to the assessee and considering assessee’s submissions, learned PCIT, ultimately, held that the assessment order passed under section 143(3) r.w.s. 147 of the Act is erroneous and prejudicial to the interest of the revenue. Thus, while setting aside the assessment order, he directed the assessing officer to correctly compute deduction under section 80IA of the Act after examining the eligibility of individual units. Being aggrieved, the assessee is before us.

4. Shri Nitesh Joshi, learned counsel appearing for the assessee submitted, the assessing officer has reopened the assessment under section 147 of the Act for the specific reason of assessing the expenditure of Rs.68,62,780/- which allegedly, escaped assessment. He submitted, since, the reopening of assessment was for a specific reason, the assessing officer could not have enquired into and examined any other issue, including, deduction claimed under section 80IA of the Act. Drawing our attention to section 147 of the Act, learned counsel submitted, apart from the escaped income for which the assessment was reopened, assessing officer can also assess any other income escaping assessment which comes to his notice subsequently in the course of the proceedings under section 147 of the Act. He submitted, the issue relating to claim of deduction was neither a part of the reason for which the assessment was reopened under section 147 of the Act nor it came to the notice of the assessing officer subsequently in course of the re­assessment proceedings. Thus, he submitted, the third Proviso to section 147 of the Act cannot expand the scope of re-assessment so as to include any and every issue. Rather, he submitted, the third Proviso to section 147 of the Act curtails the power of the assessing officer by providing that the assessing officer could only re-assess such income which is not the subject matter of any appeal, reference or revision. He submitted, the issue relating to claim of deduction under section 80IA of the Act is a subject matter of appeal presently pending before the Tribunal arising out of the original assessment proceedings. Thus, by virtue of third Proviso to section 147 of the Act, the assessing officer cannot go into that issue in the re­assessment proceedings. Thus, he submitted, claim of deduction under section 80IA of the Act not being a subject matter for which the assessment was reopened, re-assessment order could not have been held as erroneous and prejudicial to the interest of revenue and revised under section 263 of the Act for non consideration of the issue relating to deduction claimed under section 80IA of the Act. He submitted, if at all, learned PCIT could have exercised powers under section 263 of the Act in respect of the original assessment order, as, the issue relating to claim of deduction under section 80IA of the Act is a subject matter of that proceeding. However, he submitted, the period of limitation for revising the original assessment order has already expired. In support of such contention, he relied upon the following decisions:-

1. CIT vs Alagendran Finance Ltd 293 ITR 1 (SC)

5 ITA 1307/Mum/2020

2. Àsoka Buildcon Ltd vs ACIT 325 ITR 574 (Bom)

3. CIT vs ICICI Bank Ltd 343 ITR 74 (Bom)

4. M/s Janata Industries vs PCIT ITA No.4025 & 4026/Mum/2017 dt 23-05-2018

5. Strongly relying upon the observations of learned PCIT, the learned departmental representative submitted, the order passed under section 263 of the Act is not barred by limitation as it is very much clear that learned PCIT has revised the assessment order passed under section 143(3) r.w.s. 147 of the Act. He submitted, the re-assessment order, since, was passed on 11-12-2017 during the financial year 2017-18, the order passed under section 263 of the Act is within the period of two years as per the period of limitation prescribed under section 263(2) of the Act. He submitted, under section 147 of the Act the assessing officer can very well assess other income alongwith the escaped income for which the assessment was reopened. He submitted, once the assessment is reopened, the earlier assessment order becomes open before the assessing officer. He submitted, it is a fact on record that in course of re-assessment proceedings, the assessing officer failed to enquire and examine assessee’s claim of deduction under section 80IA of the Act on the issues raised by learned PCIT. Thus, he submitted, the failure on the part of the assessing officer to enquire into the deduction claimed under section 80IA of the Act has rendered the re-assessment order erroneous and prejudicial to the interest of revenue. Therefore, learned PCIT was justified in invoking powers under section 263 of the Act to revise the order. In support of such contention, learned departmental representative relied upon the following decisions:-

1. CIT vs Jet Airways India Ltd 331 ITR 236 (Bom)

2. Shoreline Hotels P Ltd vs CIT 259 Taxmann 49 (Bom)

3. HP Financial Corporation Ltd vs CIT 186 Taxmann 106 (HP)

6. In rejoinder, learned counsel for the assessee submitted, the issue of claim of deduction under section 80IA of the Act was a subject matter of dispute in the original assessment proceedings. In this context, he drew our attention to the observations of the assessing officer in the original assessment order on the said issue. Further, drawing our attention to the compliance made in course of original assessment proceedings, learned counsel submitted, the assessee had furnished all necessary details including unit-wise profit and loss account and balance-sheet alongwith form 10CCB before the assessing officer. Thus, he submitted, the issue relating to deduction claimed under section 80IA of the Act being a subject matter of the original assessment proceedings, could not have been looked into again in the re-assessment proceedings. He submitted, since the re-assessment proceeding was for the specific purpose of assessing the escaped income of Rs.68,62,780/-, the issue relating to deduction claimed under section 80IA of the Act is not at all within the scope of re-assessment. Therefore, if at all, there is any prejudice caused to the revenue, due to an erroneous order, such order has to be the original assessment order and not the re-assessment order. Further, he submitted, the decisions relied upon by the learned departmental representative are not at all applicable to the issue at hand.

7. We have considered rival submissions in the light of decisions relied upon and perused materials on record. Before we proceed to deal with the substantive issue raised by the assessee, it is necessary to put on record the following dates and events in chronological order:

Date Event
01-10-2010 Original return filed by the assessee
30-03-2012 Revised return filed by the assessee
26-03-2014 Draft assessment order passed by the assessing officer under section 143(3) r.w.s. 144C(1) of the Act
24-12-2014 Directions issued by DRP
30-01-2015 Final assessment order passed u/s 143(3) r.w.s. 144C(13)
11-12-2017 Assessment order passed under section 143(3) r.w.s. 147 of the Act

8. On a careful reading of the impugned order of learned PCIT passed under section 263 of the Act, it becomes very much clear that he has revised the assessment order passed under section 143(3) r.w.s. 147 of the Act. Thus, the issues before us are, firstly, whether the assessment order passed under section 143(3) r.w.s. 147 of the Act can be considered to be erroneous and prejudicial to the interest of revenue so as to clothe learned PCIT with the powers to revise under section 263 of the Act and secondly, whether the issue based on which learned PCIT has revised the assessment order under section 263 of the Act can be considered to be an issue concerning the re-assessment proceeding or arises out of the original assessment proceeding for the purpose of limitation under section 263(2) of the Act.

9. As per section 263 of the Act, the authority concerned has the power to revise any order, as referred to in sub section (1) of section 263 of the Act, before expiry of two years from the end of the financial year in which the order sought to be revised was passed. A reference to the dates and events narrated above would make it clear that time limit for revising the assessment order passed under section 143(3) r.w.s. 144C(13) (the original assessment order) has already expired. Whereas, the time limit for revising the assessment order passed under section 143(3) r.w.s. 147 of the Act was still there. Thus, the crucial issue which requires adjudication is, whether the assessment order passed under section 143(3) r.w.s. 147 of the Act is erroneous and prejudicial to the interest of revenue.

10. A perusal of the reasons recorded for reopening of assessment under section 147 of the Act, as reproduced in the body of the re-assessment order, would reveal that the assessing officer has reopened the assessment under section 147 of the Act for the specific purpose of assessing the amount of Rs.68,62,780/-, being the expenditure on furniture and tools. In the reasons recorded, the assessing officer has mentioned that the amount in dispute is ineligible for deduction under section 43B of the Act as per the report of the auditor. It is also a fact on record that the assessing officer has ultimately completed the assessment under section 143(3) r.w.s. 147 of the Act by disallowing the amount of Rs.68,62,780/-, i.e. the income which has escaped assessment as per the reasons recorded. Neither the reasons recorded for reopening the assessment nor any other material on record demonstrate that the issue relating to the claim of deduction under section 80IA of the Act was ever a subject matter of dispute in the re-assessment proceedings either at the time of initiation of proceedings under section 147 of the Act or in course of the re­assessment proceedings.

11. A reading of section 147 of the Act makes it clear that the assessing office, in course of proceedings under the said provision can not only assess / re-assess the escaped income based on which the assessment was reopened, but can also assess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under the aforesaid provision. Explanation 3 to section 147 of the Act further clarifies the substantive provision by saying that the assessing officer may assess or re-assess the income in respect of any issue which has escaped assessment and such issue comes to his notice subsequently in the course of proceedings under section 147 of the Act, notwithstanding that such issue does not form part of reasons recorded for reopening of assessment. Thus, on a holistic reading of section 147 of the Act it becomes very much clear that alongwith escaped income for which the assessment was reopened, the assessing officer can assess other escaped income which subsequently comes to his notice in course of re-assessment proceedings. In the facts of the present case, undisputedly, the issue relating to claim of deduction under section 80IA of the Act neither was a subject matter of reopening as per reasons recorded, nor did such matter come to the notice of the assessing officer in course of re-assessment proceedings.

12. The reopening of assessment as contemplated under section 147 of the Act is for the specific purpose of assessing the escaped income. Therefore, in a re­assessment proceeding, the assessing officer can only assess those incomes which have escaped assessment. The income which is subject matter of assessment in the original assessment proceeding, certainly, cannot be considered in the re­assessment proceeding. In the facts of the present case, a perusal of the draft assessment order as well as the final assessment order passed under section 143(3) r.w.s. 144C(13) would make it clear that the issue relating to claim of deduction under section 80IA of the Act was a subject matter there. In fact, the assessing officer has dealt with the issue of deduction claimed under section 80IA of the Act at length in the final assessment order passed under section 143(3) r.w.s. 144C(13) of the Act. Thus, the issue relating to deduction claimed under section 80IA of the Act, cannot be a subject matter of re-assessment under section 147 of the Act, as, such reopening of assessment was for assessing a particular income, which escaped assessment. Pertinently, to justify his action of revising the re-assessment order, learned PCIT has referred to the third Proviso to section 147 of the Act, which reads as under:-

“Provided also 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.”

13. A careful reading of the aforesaid Proviso would make it clear that, though, it has come into effect from 01-04-2008; however, it is not in the nature of an enabling provision. Rather, it restricts powers of the assessing officer in assessing or re-assessing escapement of income, as, it excludes such incomes which are subject matter of any appeal, reference or revision. Thus, in our considered view, the third Proviso to section 147 of the Act does not enlarge the scope of section 147 of the Act for enabling the assessing officer to assess any income which is not the subject matter of reopening of assessment as per reasons recorded or which subsequently did not come to the notice of the assessing officer in course of re­assessment proceedings. Thus, the attempt of learned PCIT to get over the decision of Hon’ble Supreme Court in case of CIT vs Alagendra Finance Ltd (supra) and the decision of Hon’ble jurisdictional High Court in Àsoka Buildcon Ltd vs ACIT (supra) by referring to the third proviso to section 147 of the Act must fail.

14. Rather, the third Proviso to section 147 of the Act would be an obstacle before the assessing officer in dealing with the issue of deduction claimed under section 80IA of the Act, as, it is a subject matter of appeal pending before the Tribunal. At this stage, we must deal with certain judicial precedents cited before us.

15. In case of CIT vs Alagendran Finance Ltd (supra), the Hon’ble Supreme Court, while dealing with more or less an identical issue of revisionary power exercised under section 263 of the Act in respect of an assessment order passed under section 143(3) r.w.s. 147 of the Act, has held in the following manner:-

“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 recomputation 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 ressessment 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 metters 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.”

16. Following the aforesaid decision of the Hon’ble Supreme Court, the Hon’ble jurisdictional High Court in case of Àsoka Buildcon Ltd vs ACIT (supra), has held, as under:-

“7) Section 263 empowers the Commissioner to call for and examine the record of any proceedings under the Act and to pass such orders as the circumstances of the case justify, including an order enhancing, modifying or cancelling the assessment and directing a fresh assessment, if he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue. Sub-section (2) of Section 263 stipulates that 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. That period of two years from the end of the financial year in which the original order of assessment dated 27 December 2006 was passed, has expired on 31 March 2009. Hence the exercise of the revisional jurisdiction in respect of the original order of reassessment is barred by limitation.

This is sought to be obviated by the Commissioner of Income Tax by seeking to revise, under Section 263, the order dated 27 December 2007. The order dated 27 December, 2007 was passed after the assessment was reopened on the ground of an escapement of income under Section 147 and an order of reassessment was passed by which the claim under Section 72A came to be disallowed. The submission that has been urged on behalf of the assessee is that, since the assessment was opened and an order of reassessment was passed only one issue namely, the claim under Section 72A, when the Commissioner as a Revisional Authority under Section 263 seeks to exercise his jurisdiction on matters which did not form the subject of the order of reassessment, the period of limitation would begin to run from the original order of assessment. This submission which has been urged on behalf of the assessee would have to be accepted in view of the judgment of the Supreme Court in Commissioner of Income Tax V/s. Alagendran Finance Ltd. The issue which arose before the Supreme Court was whether, for the purpose of computing the period of limitation envisaged under sub-section (1) of Section 263, the date of the order of assessment or of the order of reassessment is to be taken into consideration. In that case, the assessee filed its return for assessment years 1994-95, 1995-96 and 1996-97 and the assessments were completed on 27 February 1997, 12 May 1997 and 30 March 1998. In the orders of assessment, the return of the assessee under the head of “Lease Equalisation Fund” were accepted. Proceedings for reassessment were initiated by the Assessing Officer and orders of reassessment were passed in respect of the following items namely (i) expenses claimed for share issue; (ii) bad and doubtful debts; and (iii) excess depreciation on gas cylinders and goods containers. Though the return of income in respect of the “Lease Equalisation Fund” was not the subject matter of the reassessment proceedings, the Commissioner of Income Tax invoked his revisional jurisdiction under Section 263 and by his order came to the conclusion that the assessee had not furnished complete details and the order of the Assessing Officer was prejudicial to the interest of the Revenue. The Tribunal held that the order which was passed under Section 263 on 29 March 2004 was barred by limitation. The Supreme Court held that the Commissioner of Income Tax, while exercising his jurisdiction under Section 263 found that only that part of the order of assessment which related to the lease equalisation fund was prejudicial to the interests of the Revenue. But the proceedings for reassessment had nothing to do with the said head of income. The Supreme Court clearly held that the doctrine of merger was not attracted to a case of that nature.

The Supreme Court followed its earlier judgment in C.I.T. V/s. Sun Engineering Co. Pvt. Ltd.2 and held that the Tribunal had found that all the subsequent events were in respect of matters other than the lease equalisation fund. In other words, this was not a case where the subject matter of the assessment and the reassessment was the same. The Supreme Court then held as follows:-

“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 his revisional jurisdiction reopened the order of assessment only in relation to lease equalisation fund which being not the subject of 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. “

8)Where an assessment has been reopened under Section 147 in relation to a particular ground or in relation to certain 2 (1992) 198 I.T.R. 297 specified grounds and, subsequent to the passing of the order of reassessment, the jurisdiction under Section 263 is sought to be exercised with reference to issues which do not form the subject of the reopening of the assessment or the order of reassessment, the period of limitation provided for in sub-section (2) of Section 263 would commence from the date of the order of assessment and not from the date on which the order reopening the reassessment has been passed.

9) Section 147 empowers the Assessing Officer, if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year to assess or reassess the said 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 the Section. Explanation 3 which has been inserted by the Finance Act (No.2) of 2009 with retrospective effect from 1 April, 1989 provides that for the purpose of assessment or reassessment under the 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 the Section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of Section

148. The substantive part of Section 147 empowers the Assessing Officer to assess or reassess the income chargeable to tax which has escaped assessment and any other income which comes to his notice subsequently in the course of proceedings under the Section.

The effect of Explanation 3 is to empower the Assessing Officer to assess or reassess the income in respect of any issue which comes to the notice in the course of the proceedings under the section, though the reasons which were recorded in the notice under Section 148(2) did not contain reference to that issue.

10) The submission which has been urged on behalf of the Revenue is that when several issues are dealt with in the original order of assessment and only one or more of them are dealt with in the order of reassessment passed after the assessment has been reopened, the remaining issues must be deemed to have been dealt with in the order of reassessment. Hence, it has been urged that the omission of the Assessing Officer, while making an order of reassessment to deal with those issues under Section 143 (3) read with 147 constitutes an error which can be revised in exercise of the jurisdiction under Section 263. The submission cannot be accepted either as a matter of first principle, based on a plain reading of the provisions of Sections 147 and 263, nor is it sustainable in view of the law laid down by the Supreme Court. The Supreme Court has now clearly held in the decision in Alagendran Finance that the doctrine of merger does not apply where the subject matter of reassessment and of the original order of assessment is not one and the same. In other words, where the assessment is sought to be reopened only one one or more specific grounds and the reassessment is confined to one or more of those grounds, the original order of assessment would continue to hold the field, save and except for those grounds on which a reassessment has been made under Section 143(3) read with Section 147. Consequently, an appeal by the assessee on those grounds on which the original order of assessment was passed and which do not form the subject of reassessment would continue to subsist and would not abate.

The order of assessment cannot be regarded as being subsumed within the order of reassessment in respect of those items which do not form part of the order of reassessment. Where a reassessment has been made pursuant to a notice under Section 148, the order of reassessment prevails in respect of those items which form part of reassessment. On items which do not form part of the reassessment, the original assessment continues to hold the field.

When the Assessing Officer reopens an assessment on a particular issue, it is open to him to make a reassessment on that issue as well as in respect of other issues which subsequently come to his notice during the course of the proceedings under Section 147. The submission of the Revenue is that by not passing an order of reassessment in respect of other independent issues, the order of the Assessing Officer can be construed to be erroneous and to be prejudicial to the interest of the Revenue within the meaning of Section 263. The submission cannot be accepted in the facts of the present case. The substantive part of Section 147 as well as Explanation 3 enables the Assessing Officer to assess or reassess income chargeable to tax which he has reason to believe had escaped assessment and other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. There is nothing on the record of the present case to indicate that there was any other income which had come to the notice of the Assessing Officer as having escaped assessment in the course of the proceedings under Section 147 and when he passed the order of reassessment. The Commissioner, when he exercised his jurisdiction under Section 263, in the facts of the present case, was under a bar of limitation since limitation would begin to run from the date on which the original order of assessment was passed. We must however clarify that the bar of limitation in this case arises because the revisional jurisdiction under Section 263 is sought to be exercised in respect of issues which did not form the subject matter of the reassessment proceedings under Section 143(3) read with 147. In respect of those issues, limitation would commence with reference to the original order of assessment. If the exercise of the revisional jurisdiction under Section 263 was to be in respect of issues which formed the subject matter of the reassessment, after the original assessment was reopened, the commencement of limitation would be with reference to the order of reassessment. The present case does not fall in that category.

11) Counsel appearing on behalf of the Revenue relied upon the judgment of the Supreme Court in Income Tax Officer V/s. K.L. Srihari (UHF)3. That was a case where an assessment was reopened under Section 147. The Supreme Court, after considering the original order of assessment dated 19 March 1983 and the order of reassessment dated 16 July 1987 passed under Section 147 held that the subsequent order made a fresh assessment of the entire income of the assessee. Once, in the exercise of the power under Section 147, the Assessing Officer had reassessed the entire income of the assessee, the Supreme Court held that the original order would stand effaced by the subsequent order. Srihari was, therefore, a case where the subject matter of the original order of assessment as well as of the order of reassessment was the same.

This is distinct from the situation in the subsequent judgment of 3 (2001) 118 Taxman 890 (S.C.) Alagendran Finance where the Supreme Court noted that the subject matter of the original assessment and the order of reassessment was not the same. The facts of the present case are similar to those in Alagendran Finance which must, therefore, apply.

12) For these reasons, we are of the view that the exercise of the revisional jurisdiction under Section 263 is barred by limitation. We clarify that this would not preclude the Revenue from taking recourse to any other remedy that may be available in law.”

17. Similar is also the view expressed by the Hon’ble Jurisdictional High Court in case of CIT vs ICICI Bank Ltd (supra).

18. Now, let us deal with the decisions cited by the learned departmental representative. In case of CIT vs Jet Airways Ltd (supra), the issue was whether the assessing officer in a re-assessment proceeding can assess any other income which are not subject matter of reopening while not assessing the income for which assessment was reopened. Thus, the ratio laid down by the jurisdictional High Court is not applicable to the present case, as, in the case of the present assessee the escaped income was assessed. The other decisions relied upon by learned departmental representative, on careful perusal, are found to be not applicable to the present case.

19. In any case of the matter, in our considered opinion, the ratio laid down by the Hon’ble Supreme Court in case of CIT vs Alagendran Finance Ltd (supra) and the Hon’ble jurisdictional High Court in the case of Ashoka Buildcon vs CIT (supra) clinches the issue in favour of the assessee. Further, a reading of the original assessment order would reveal that the issue relating to deduction claimed under section 80IA was a subject matter therein. In fact, the draft assessment order passed by the assessing officer on the issue of deduction claimed under section 80IA of the Act was disputed before learned DRP and after passing of the final assessment order, the issue relating to claim of deduction under section 80IA of the Act is now pending in appeal before the Tribunal. Therefore, any attempt by the assessing officer to deal with such issue in re-assessment proceedings would have amounted to review of the original assessment order, which is impermissible. Thus, in the aforesaid scenario, the assessment order passed under section 143(3) r.w.s. 147 of the Act cannot be considered as erroneous and prejudicial to the interest of revenue to subject it to proceeding under section 263 of the Act. If, at all, any order of the subordinate authority which could have been considered as erroneous and prejudicial to the interest of revenue in allowing assessee’s claim of deduction under section 80IA of the Act, either due to lack of enquiry or otherwise, is the original assessment order passed under section 143(3) r.w.s. 144C of the Act and not the re-assessment order. Therefore, the period of limitation prescribed under section 263(2) of the Act would run from the original assessment order.

20. Being conscious of the fact that the original assessment order could not be revised under section 263 of the Act due to bar of limitation, as provided under sub section (2) of section 263 of the Act, learned PCIT, as it appears, has proceeded to revise the assessment order passed under section 143(3) r.w.s. 147 of the Act to get over the hurdle of limitation. This, in our view, is impermissible. Thus, based on the foregoing reasoning, we hold that the impugned order of learned PCIT revising the order passed under section 143(3) r.w.s. 147 of the Act is unsustainable. Accordingly, we quash it.

21. In the result, appeal is allowed, as indicated above.

Order pronounced on 29/07/2021.

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