2015 (5) TMI 587 - HC - Income Tax

Period of limitation for rectification of mistake u/s 154 - doctrine of merger - whether the limitation of four years u/s 154(7) would commence from the date of the assessment order dated 26.03.2007 and not from the date of re-assessment order u/s 147 r.w.s. 148? - Incorrect set off of unabsorbed depreciation against Income (under normal provisions) - Held that - In the present case the assessment was reopened by issue of notice under Section 148 of the Act on 20-10-2009 and the re-assessment order was passed on 19.03.2010. Before that the assessment under Section 143 (3) was concluded vide order dated 26.03.2007. Having regard to the position of Law settled by the Supreme Court the effect of reopening the assessment under section 148 would be to vacate or set aside the initial order for assessment under Section 143(3) and to substitute in its place the order made under Section 147 of the Act. Once a notice under Section 148 is issued for the purpose of making re-assessment the earlier proceedings get reopened and where the re-assessment under Section 147 is done the initial order of assessment under Section 143 (3) ceases to be operative. Thus the result of reopening the assessment under Section 148 is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of turnover escaping the assessment. Apart from that in the present case the notice under Section 154 clearly states that the order under Section 147 of the Act made on 19-03-2010 requires amendment as there is a mistake apparent from the record and the notice also referred to the details of mistake. The difference between the words any order in section 154 and the words the order in section 263 of the Act would also have to be noticed and read to understand the words any order to mean even an order of re-assessment or the amended/rectified order passed by an Income-Tax authority. There cannot be any doubt that the re-assessment order under Section 147 read with Section 148 of the Act is also any order which could be rectified by issuing a notice under Section 154 of the Act. In other words the words any order in Section 154 (1) (a) of the Act would mean even the re-assessment order under Section 147 of the Act. Merely because in the case under Section 154 it is the same Officer who invokes the jurisdiction and in the case under Section 263 it is a superior Officer would not mean or it cannot be stated that both the expressions any order and the order as occur in Sections 154 and 263 respectively would have the same meaning. The word the clearly denotes the specific order while the word any would mean any order passed by the Income-Tax Authority. The facts of our case are similar to Hind Wire Industries Limited (1995 (1) TMI 2 - SUPREME Court ) and so also the other judgments referred to in the foregoing paragraphs in particular Kundan Lal Srikishan 1987 (2) TMI 448 - SUPREME COURT OF INDIA and H.R. Sri Ramulu (1977 (1) TMI 112 - SUPREME COURT OF INDIA) and in view thereof we hold that the doctrine of merger would apply to the facts of the present case. The limitation therefore would start to run from the date of re-assessment order dated 19.03.2010 and since the notice under Section 154 was issued on 31.08.2012 it was well within the time stipulated under sub-section (7) of Section 154 of the Act. We answer the first question in the negative. - Decided against assessee. Scope of section 154 - whether the issues which are highly debatable could be the subject matter of the proceedings under Section 154 of the Act? - Held that - The questions whether the mistake pointed out in the impugned notice is an obvious and patent mistake and whether to establish such mistake a long drawn process and reasoning would require in our opinion cannot be and need not be gone into in writ jurisdiction under Article 226 of the Constitution when a notice under Section 154 of the Act would have to be decided on merits. It is true that the jurisdiction under Article 226 of the Constitution can be exercised in a case where the action complained of is without jurisdiction or is taken/initiated on assumption of power not vested in the Officer. It is well settled that where the exercise of power ex facie appears to be without jurisdiction the Court would be inclined to interfere but even in that case lack of jurisdiction would have to be revealed from the notice and reasons on the face thereof and not by discussion on merits. Challenge to the notice under Section 154 of the Act in the present case is not on the ground of jurisdiction or assumption of power not vested in the authority. The petitioners have already filed their objections which respondent No.1 will have to decide after following due procedure and taking into consideration the reply filed by the petitioners by passing a speaking order. The 1st respondent is bound to furnish reasons for deciding the notice and deal with all contentions urged by the petitioners in their reply. In the circumstances we are not inclined to entertain the second question raised for our consideration and we keep all contentions of the parties in respect thereof open to be considered by the 1st respondent. W.P. dismissed.

Summary

Issues Involved:
1. Legality of the notice issued under Section 154 of the Income Tax Act, 1961.
2. Limitation period for issuing the notice under Section 154.
3. Jurisdictional scope of Section 154 in rectifying mistakes.

Detailed Analysis:

Issue 1: Legality of the Notice Issued Under Section 154 of the Income Tax Act, 1961

The writ petition challenges a notice issued by the Assistant Commissioner of Income Tax under Section 154 of the Income Tax Act, 1961, proposing to rectify a concluded assessment for the Assessment Year 2005-06. The notice aimed to rectify a mistake in the re-assessment order dated 19-03-2010, specifically the incorrect set-off of unabsorbed depreciation from Assessment Years 1993-94 to 1996-97 against the income of Assessment Year 2005-06. The petitioner contended that the notice was illegal, arbitrary, and barred by limitation.

Issue 2: Limitation Period for Issuing the Notice Under Section 154

The core question was whether the limitation for issuing the notice under Section 154 commenced from the date of the original assessment order under Section 143(3) (dated 26-03-2007) or from the date of the re-assessment order under Section 147 (dated 19-03-2010). The petitioner argued that the limitation period of four years should start from the date of the original assessment order, making the notice issued on 31-08-2012 time-barred. Conversely, the Revenue contended that the original assessment order merged with the re-assessment order, and thus, the limitation period should start from the date of the re-assessment order, making the notice timely.

Legal Precedents and Analysis:

The court examined several precedents, including the Supreme Court judgments in Hind Wire Industries Ltd. and M/s. Alagendran Finance Ltd. In Hind Wire Industries Ltd., the Supreme Court held that the word "order" in Section 154(7) includes both the original and rectified orders. In M/s. Alagendran Finance Ltd., it was clarified that the doctrine of merger applies only to the points dealt with in the later proceedings, and not to the entire proceedings unless the subject matter of re-assessment is distinct and different.

Court's Conclusion:

The court concluded that the re-assessment order dated 19-03-2010 effectively replaced the original assessment order dated 26-03-2007. Therefore, the limitation period for issuing the notice under Section 154 commenced from the date of the re-assessment order, making the notice issued on 31-08-2012 within the permissible time frame. The court held that the doctrine of merger applied, and the limitation period started from the date of the re-assessment order.

Issue 3: Jurisdictional Scope of Section 154 in Rectifying Mistakes

The petitioner argued that the issues raised in the notice under Section 154 were highly debatable and could not be rectified under the narrow and restrictive jurisdiction of Section 154, which is meant for rectifying obvious and patent mistakes. The Revenue, however, maintained that the question of whether the mistake was obvious and patent should be decided on merits and not in writ jurisdiction under Article 226 of the Constitution of India.

Court's Conclusion:

The court noted that the petitioner had already responded to the notice with an exhaustive reply, raising all pertinent questions. The court opined that the merits of whether the mistake was obvious and patent should be decided by the assessing officer and not in writ jurisdiction. The court emphasized that the jurisdiction under Article 226 could be exercised only if the action complained of was without jurisdiction or assumed power not vested in the officer. Since the challenge was not on the ground of jurisdiction or assumption of power, the court declined to entertain this issue in the writ petition.

Final Order:

The writ petition was dismissed, and the court directed the assessing officer to consider the petitioner's reply and pass a speaking order, addressing all contentions raised. The court kept all contentions of the parties open for consideration in appropriate proceedings if the order was adverse to the petitioner. The court also disposed of any pending miscellaneous petitions in the writ petition.