2013 (11) TMI 1059 - HC - Income Tax

Validity of proceedings u/s 263 - doctrine of merger - Held that - The subject matter considered by the First Appellate authority was not with respect to the method of computation but altogether a different subject matter therefore the original assessment order accepting the book profit computed by the assessee on 28.12.2007 would be the criterion so far as limitation issued and not the subsequent order of the assessing authority consequent to the order of the First Appellate Authority - In order to exercise suo motu powers under Section 263 finding fault with the book profit computation accepted by the assessing authority, it ought to be from original assessment order and not with reference to First Appellate Authority s order which was nothing to do with acceptance of book profit computation adopted by the assessee - Decided against Revenue.

Issues:
1. Assessment year 2005-06 - Return of income filed with nil taxable income, later revised.
2. Scrutiny assessment under Section 143(3) of the Income Tax Act.
3. Disallowances/additions made during assessment.
4. Appeal before Commissioner of Income Tax (Appeals-II) and subsequent proceedings.
5. Invocation of suo motu jurisdiction under Section 263 of the Act.
6. Dispute regarding unabsorbed depreciation and book profit computation.
7. Appeal before the Tribunal against Commissioner's order under Section 263.
8. Limitation issue in initiating proceedings under Section 263.
9. Tribunal's decision on the initiation of proceedings under Section 263.

Analysis:
1. The respondent-assessee filed the return for the assessment year 2005-06 with nil taxable income, later revised to declare gross total income and claim deductions. The case underwent scrutiny under Section 143(3) of the Act, resulting in a total income of Rs. 288,475,850/-.

2. Disallowances and additions were made during the assessment process, leading to an appeal before the Commissioner of Income Tax (Appeals-II). The First Appellate authority partly allowed the appeal, resulting in a gross total income of Rs. 27,28,51,217/-, with the total income under normal provisions being nil.

3. Subsequently, the Commissioner invoked suo motu jurisdiction under Section 263 of the Act, citing an error in the Assessing Officer's order regarding unabsorbed depreciation and book profit computation. The Commissioner's order was challenged before the Tribunal.

4. The Tribunal allowed the appeal in favor of the assessee, stating that the Commissioner's order was barred by limitation since the original assessment had been completed earlier, accepting the book profit computed by the assessee. The Revenue filed an appeal contending that the limitation issue did not apply in this case.

5. The Tribunal justified its decision by emphasizing that the initiation of proceedings under Section 263 should be based on the original assessment order accepting the book profit, not the subsequent orders following the First Appellate authority's decision.

6. Considering the circumstances, the Tribunal held that the assessing authority's acceptance of the book profit computation on 28.12.2007 was the relevant criterion for the limitation issue, not the subsequent orders. Therefore, the Tribunal dismissed the appeal, stating that the initiation of proceedings under Section 263 was not justified based on the timing and reference point of the assessment order.

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