2011 (4) TMI 1353 - AT - Income Tax

Summary

Issues Involved:
1. Invocation of provisions u/s 263 of the IT Act.
2. Limitation period for passing the order u/s 263.
3. Merger of original and reassessment orders with CIT(A) orders.
4. Disallowance of expenditure in respect of exempt income u/s 115JB.

Summary:

1. Invocation of Provisions u/s 263 of the IT Act:
The CIT initiated proceedings u/s 263 on the grounds that the Assessing Officer (AO) failed to make necessary disallowance in terms of clause (f) of explanation (1) to section 115JB regarding dividend income claimed exempt u/s 10, resulting in under-assessment of book profit. The CIT held the order passed by the AO u/s 143(3)/147 on 29.11.2006 as erroneous and prejudicial to the interest of the revenue. The CIT directed the AO to pass a fresh assessment order computing book profit u/s 115JB after making necessary adjustments.

2. Limitation Period for Passing the Order u/s 263:
The assessee argued that the order u/s 263 was beyond the limitation period as the issue on which revision was made was not part of the reassessment proceedings. The period of limitation should commence from the original assessment order dated 22.3.2004. The Tribunal, referencing the Supreme Court decision in CIT vs Alagendran Finance Ltd (293 ITR 1), held that the period of limitation begins from the date of the original assessment order when the reassessment does not cover the item sought to be revised.

3. Merger of Original and Reassessment Orders with CIT(A) Orders:
The assessee contended that the original assessment order and the reassessment order merged with the CIT(A) orders dated 30.3.2005 and 17.1.2008, making the order u/s 263 void and bad in law. The Tribunal agreed, citing the doctrine of merger, which applies only to items that were the subject matter of appeal and not to those that were not.

4. Disallowance of Expenditure in Respect of Exempt Income u/s 115JB:
The CIT directed the AO to compute book profit u/s 115JB after making necessary adjustments for disallowance of expenditure related to exempt income. The Tribunal found that the CIT's order was based on presumption and assumption without concrete evidence of expenditure related to exempt income. The Tribunal referenced the decision in Wimco Seedlings Ltd vs DCIT (107 ITD 267) and held that the CIT could not direct the AO to make additions without arriving at a conclusion that there was indeed expenditure related to exempt income.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the order passed by the CIT u/s 263 was barred by limitation and based on assumptions without concrete evidence. The other grounds raised by the assessee were deemed academic and not adjudicated. The order pronounced on 6th April 2011.