2011 (10) TMI 625 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction u/s 263 of the Income-tax Act, 1961.
2. Legality of reviving the limitation period u/s 153(2) by invoking sec. 263.
3. Tax implications of the write-off by Shri Shreya Morakhia.

Summary:

1. Jurisdiction u/s 263 of the Income-tax Act, 1961:
The assessee challenged the jurisdiction of the Learned Commissioner u/s 263, arguing that no assessment order was passed u/s 143(3)/147, and thus, any remedial action under sec. 263 would be contrary to law. The Tribunal held that the discontinuation or dropping of reassessment proceedings by the Assessing Officer (AO) can be construed as an order within the meaning of "any order passed therein by the Assessing Officer" u/s 263. Therefore, the Learned Commissioner was justified in taking cognizance under sec. 263.

2. Legality of reviving the limitation period u/s 153(2) by invoking sec. 263:
The assessee contended that it is not legally permissible to revive the limitation period provided in section 153(2) by invoking sec. 263. The Tribunal noted that the Learned Commissioner was not extending the time limit for passing the reassessment order but was correcting the prejudice suffered by the department due to the erroneous action of the AO. The Tribunal upheld the Learned Commissioner's action under sec. 263, stating that the basic object of sec. 263 is to scrutinize the AO's actions administratively.

3. Tax implications of the write-off by Shri Shreya Morakhia:
The assessee argued that the write-off of Rs. 50,29,896 by Shri Shreya Morakhia does not result in any income in the hands of the assessee company, as the liability was related to the acquisition of shares and the corresponding investment value was reduced. The Tribunal found that the AO had dropped the reassessment proceedings after being satisfied with the assessee's explanation. The Tribunal referred to the judgments of the Hon'ble Mumbai High Court in CIT vs. Jet Airways (I) Ltd. and the Hon'ble Delhi High Court in Ranbaxy Laboratories Vs. CIT, which held that if no income has escaped assessment, the AO cannot examine other issues. Consequently, the Tribunal concluded that the Learned Commissioner could not take cognizance of the issue of excessive capital loss claimed by the assessee under sec. 263.

Conclusion:
The Tribunal quashed the order passed under sec. 263 by the Learned Commissioner, stating that the AO's action of dropping the reassessment proceedings was not erroneous or prejudicial to the interest of the revenue. The appeal of the assessee was partly allowed.