2008 (7) TMI 1029 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Appellate Tribunal is right in law and on facts in holding that the directions contained in the order passed by the C.I.T. under Section 263 in so far as it related to Section 80J was after expiry of a period of two years and therefore, revision jurisdiction could not be exercised on this issue?
2. Whether the Appellate Tribunal ought not to have appreciated that once fresh assessment is made by the Assessing Officer pursuant to the directions given by the C.I.T. under Section 263, it would be a fresh assessment for all purposes?

Comprehensive, Issue-Wise Detailed Analysis:

Issue 1: Limitation on Revision Jurisdiction under Section 263
1. Factual Background: The assessment years in question are 1979-80 and 1980-81. For 1979-80, the Income Tax Officer (ITO) passed the assessment order on 26.03.1981, allowing deductions under Sections 35B and 80J. The Commissioner of Income Tax (CIT) passed an order under Section 263 on 24.12.1983, remanding the proceedings for reconsideration of the deduction under Section 35B. The ITO passed a fresh order on 24.08.1984, maintaining the original benefit under Section 80J. The CIT again sought to revise the order on 06.01.1987, which was beyond the limitation period.

2. Tribunal's Decision: The Tribunal held that the CIT's exercise of power under Section 263 was beyond the period of limitation. The Tribunal noted that the error, if any, in granting the benefit under Section 80J arose in the original assessment order dated 26.03.1981, and not in the fresh order dated 24.08.1984. Therefore, the CIT could not revise the order beyond the two-year limitation period prescribed under Section 263.

3. Legal Precedents: The Tribunal relied on various decisions, including:
- Karsandas Bhagwandas Patel Vs. ITO: Held that an order not subject to review by the Appellate Authority can be rectified by the ITO.
- Ahmedabad Sarangpur Mills Co. Ltd.: Held that the period of limitation for rectifying orders should be from the date of the original assessment order.
- C.I.T. Vs Alagendran Finance Ltd.: The Supreme Court held that the period of limitation commences from the original assessment and not from the reassessment unless the reassessment pertains to the same issue.

4. Court's Conclusion: The Court agreed with the Tribunal, stating that the CIT did not find any error in the original assessment orders regarding Section 80J during the first round of revision. The mistake, if any, was in the original order, and thus, the CIT could not revise it beyond the two-year limitation period. The decision in C.I.T. Vs Alagendran Finance Ltd. was applied, affirming that the period of limitation commenced from the original assessments.

Issue 2: Fresh Assessment and Doctrine of Merger
1. Revenue's Argument: The Revenue argued that once the assessments were reopened, only fresh assessment orders survived. Thus, the CIT's exercise of power under Section 263 was within the period of limitation from the date of the fresh assessment orders. They relied on Hind Wire Industries Ltd. Vs. Commissioner of Income Tax, where the Supreme Court held that the word "Order" under Section 154(7) could mean any order, including amended or rectified orders.

2. Assessee's Argument: The Assessee contended that the CIT's power was time-barred as the original assessment orders were not revised within the limitation period. The remand orders were specific to Section 35B and did not reopen the entire assessment, including Section 80J. They relied on C.I.T. Vs Alagendran Finance Ltd., where the Supreme Court held that the period of limitation commenced from the original assessments when the reassessment did not pertain to the same issue.

3. Court's Analysis: The Court noted that the CIT, in the first round of revision, did not find any error in the original assessment orders regarding Section 80J. The remand orders were specific to Section 35B. The fresh orders by the ITO were limited to the directions given by the CIT and did not reassess the entire income. The principle of merger did not apply as the reassessment was limited to Section 35B and did not affect Section 80J.

4. Conclusion: The Court held that the CIT could not revise the orders beyond the limitation period as the original assessment orders were not wholly set aside. The CIT's directions were specific to Section 35B, and the ITO's fresh orders were confined to those directions. The decision in Hind Wire Industries Ltd. was distinguished as it pertained to rectification under different circumstances.

Final Judgment:
The Court answered both questions in favor of the Assessee and against the Revenue. The Tribunal's decision was upheld, confirming that the CIT's exercise of power under Section 263 was beyond the period of limitation and that the fresh assessment did not reopen the entire assessment for all purposes.