2015 (9) TMI 1720 - AT - Income Tax

Revision u/s 263 by CIT - period of limitation - disallowance of interest u/s 36(1)(iii) - application of gross profit rate of 24.57% on the turnover of the assessee after rejecting the books of account of the assessee under section 145(3) - HELD THAT - It is not in dispute that the original assessment order in this case was passed on 26/12/2008 and the same dealt with application of gross profit rate of 24.57% on the turnover of the assessee after rejecting the books of account of the assessee under section 145(3). It is also not in dispute that reassessment proceedings were initiated for making disallowance of interest under section 36(1)(iii) - also not in dispute that the proceeding under section 263 were initiated for applying the GP rate of 24.57%, on a turnover shown in the audited balance sheet filed to the bank as against the GP rate applied by the AO on a turnover shown in the audited balance sheet filed alongwith return of income. It is evident from the above that the error related to application of G.P. rate and had crept in the order passed u/s 143(3) on 26/12/2008.The order passed u/s 147 had nothing to do with this issue. Therefore the order u/s 143(3) would subsist and would not merge with the order u/s 147. The limitation for the passing of order under section 263 was to be taken into consideration from the date of passing of order u/s 143(3) i.e. 26/12/2008. The limitation in the present case therefore expired on 31/03/2011. The impugned order under section 263 having been passed on 22/03/2013 it is well beyond the period of limitation. In view of the same we hold that the impugned order is barred by limitation. Accordingly the order of the Ld. CIT u/s 263 is vacated. - Decided in favour of assessee.

Summary

Issues involved:
1. Jurisdiction under section 263 of the Income Tax Act.
2. Limitation period for passing order under section 263.
3. Application of Gross Profit rate in assessment.

Issue 1: Jurisdiction under section 263 of the Income Tax Act:
The appeal was filed against the order of the Ld. CIT, Panchkula under section 263 of the Income Tax Act 1961. The CIT initiated proceedings against the order passed under section 147/143(3) on the grounds that the assessee maintained two sets of account books with different turnovers. The AO rejected the books under Section 145(3) and applied a higher GP rate on the lower turnover, resulting in under-assessment of income. The CIT held the assessment as erroneous and prejudicial to the interest of revenue, canceling the assessment and directing the AO to consider the higher turnover for computation.

Issue 2: Limitation period for passing order under section 263:
The appellant argued that the order under section 263 was barred by limitation, as it was passed beyond the prescribed period from the date of the original assessment order under section 143(3). The appellant contended that the error in applying the GP rate on the turnover was in the order dated 26/12/2008, not in the subsequent order under section 147. The appellant relied on the doctrine of merger and the Supreme Court ruling in CIT vs. Alagendran Finance Ltd. The Tribunal held that the order under section 263 was indeed barred by limitation as it was passed well beyond the prescribed period from the original assessment order.

Issue 3: Application of Gross Profit rate in assessment:
The Tribunal concluded that the error related to the application of the GP rate in the order passed under section 143(3) on 26/12/2008. The subsequent order under section 147 did not address this issue. The Tribunal referred to the Supreme Court ruling in CIT Vs. Alagendran Finance Ltd., emphasizing that the limitation for passing an order under section 263 should be calculated from the date of the original assessment order. As the order under section 263 was passed beyond the limitation period, it was deemed barred by limitation. Consequently, the Tribunal vacated the order under section 263, and the appeal of the assessee was allowed.

This detailed analysis of the judgment provides insights into the issues of jurisdiction under section 263, the limitation period for passing orders, and the application of the Gross Profit rate in the assessment process.