2017 (1) TMI 1645 - HC - Income Tax

Revision u/s 263 pursuant to search operations carried out in terms of Section 153A - Extension of limitation period - limitation given in Section 153(2A) application to cases of fresh assessment made pursuant to orders passed u/s 263 - non-obstinate clause for limitation given in case of search and seizure i.e. 153B and 153C - scope of Revisionary powers of CIT-A - Whether as Section 153(2A) only finds place in Section 153A and since 153B and 153C start with non-obstante clause, benefit of Section 2A cannot be availed of to extend the limitation in cases where the Commissioner exercises powers under Section 263 where the assessment is pursuant to search operations carried out in terms of Section 153A? - as argued there is non-obstinate clause for limitation given in case of search and seizure i.e. 153B and 153C of the Income Tax Act, the final limitation cannot be extended HELD THAT - Non-obstinate clause of Section 153B and 153C of the Income Tax deals mainly with the extending the period for which the Income Tax Act can carry out the assessment and reassessment under Section 147 of the Income Tax Act. Reassessment can only be done within a period of four years but where the search is carried out, reassessment can be done within a period of six years. No doubt Sections 153B and 153C lay down different time limitations for making the assessment but these time limits are for making initial assessments by the Assessing Officer pursuant to the search and seizure operations. Once those assessments are made if the powers under Section 263 of the Income Tax Act are invoked by the Commissioner then we will have to fall back on the provisions of Section 153(2)A of the Income Tax Act which provides that when the Commissioner invokes the powers under Section 263 of the Income Tax Act then the fresh assessment order in terms of the Commissioner has to be passed within a period of one year from the date of communication of the order. If the argument of Learned Counsel for the Appellant is accepted, it would virtually amount to deleting Section 263 in cases of reassessment on the basis of search and seizure. When an order is passed under Section 263 it is a fresh order and limitation has to be reckoned from the date of that order. The Income Tax Act does not specifically deal with Section 263 of the Income Tax Act in respect of search and seizure cases and rightly so. Revisionary powers can be exercised by the Commissioner in all cases where assessment is made and once he exercises his revisionary powers then the provisions of Section 153(2A) of the Income Tax Act will be applicable and the limitation will be one year from the date of the order being passed by the Commissioner in revision petition - Limitation given in Section 153(2A) of the Income Tax Act will apply in all cases of fresh assessment made pursuant to orders passed under Section 263 - Appeal dismissed.

Summary

Issues Involved:
1. Validity of the Commissioner of Income Tax's invocation of Section 263 of the Income Tax Act.
2. Timeliness and legality of reassessment under Section 263 in light of the limitation period.
3. Adequacy of the Assessing Officer's original order and its impact on revenue interests.

Detailed Analysis:

1. Validity of the Commissioner of Income Tax's Invocation of Section 263:
The core issue was whether the Commissioner of Income Tax (CIT) was justified in invoking Section 263 of the Income Tax Act, which allows for revision of orders that are erroneous and prejudicial to the interests of the revenue. The court observed that the Assessing Officer's (AO) order was a non-speaking order and did not address the critical issue of the origin of ?39.08 crores invested in the shell companies. The CIT found that the AO's order showed a total non-application of mind and was prejudicial to the interests of the revenue. The court upheld the CIT's invocation of Section 263, citing that the AO failed to make necessary inquiries, thus justifying the CIT's directive for a fresh assessment.

2. Timeliness and Legality of Reassessment under Section 263:
The appellants argued that the reassessment was barred by the limitation period specified under Sections 153B and 153C of the Income Tax Act. However, the court clarified that these sections deal with the initial assessment period following search and seizure operations. When the CIT exercises revisionary powers under Section 263, the relevant limitation period is governed by Section 153(2A), which allows for a fresh assessment within one year from the end of the financial year in which the order under Section 263 is passed. The court dismissed the appellants' contention, stating that the non-obstante clause in Sections 153B and 153C does not override the applicability of Section 153(2A) for reassessments following a Section 263 order.

3. Adequacy of the Assessing Officer's Original Order and its Impact on Revenue Interests:
The court noted that the AO's original order failed to address significant issues raised in the detailed questionnaire, such as the source of funds for the share capital and share premium. The AO accepted the income as declared without proper scrutiny, making the order erroneous and prejudicial to the revenue. The court emphasized that the AO's failure to investigate the genuineness of the shareholders and the origin of the funds constituted a significant lapse. The court cited several precedents to reinforce that an order passed without proper inquiry or application of mind is erroneous and justifies revision under Section 263.

Conclusion:
The court dismissed the appeals, affirming the CIT's decision to invoke Section 263 and order a fresh assessment. The court found that the original AO's order was erroneous and prejudicial to the interests of the revenue, and the reassessment was within the permissible limitation period under Section 153(2A). The judgment highlighted the necessity for thorough investigation by the AO and upheld the broad powers of the CIT under Section 263 to ensure the correctness of assessments.