2018 (6) TMI 840 - HC - Income Tax

Doctrine of Merger - Issue of notice u/s 148 - disallowance of interest paid to banks - revision u/s 263 - Chnage of opinion - Held that - It can be construed to be Change of Opinion only when the same issue dealt with in reassessment is raised again in proceedings u/s 263 - thus relying upon the judgement in Sat Pal Aggarwal s case (COMMISSIONER OF INCOME-TAX VERSUS SAT PAL AGGARWAL 2007 (2) TMI 104 - HIGH COURT, PUNJAB AND HARYANA where it is held that reassessment proceedings and thereafter invocation of jurisdiction by Commissioner under Section 263 of the IT Act were on the same set of grounds - hence we agree with the conclusion of the learned single Judge that this is not a case of change of opinion u/s 263. Whether for the purpose of computing the period of limitation envisaged u/s 263(2), the date of order of assessment or that of the reassessment, is to be taken into consideration? - Held that - As per the Alagendran Finance case (COMMISSIONER OF INCOME-TAX VERSUS ALAGENDRAN FINANCE LTD. 2007 (7) TMI 304 - SUPREME COURT it is clear that when a notice u/s 263 raises new issues, which are not subject matter of the re-assessment proceedings, then the two year period contemplated under 263(2) would begin to run from the date of assessment and not from the date of re-assessment - hence reckoning date of the impugned notice for the purpose of Section 263(2) is not the date of re-assessment being 30.12.2016, but the date of scrutinizing the assessment i.e, 25.02.2015 - hence the impugned notice issued by the Revenue dated 16.08.2017 is set aside as being hit by limitation u/s 263(2) - therefore the notice is quashed.

Summary

Issues involved:
1. Validity of the notice dated 16.08.2017 issued by the Commissioner of Income Tax under Section 263 of Income Tax Act, 1961.
2. Whether the notice was issued within the prescribed limitation period of two years from the end of the financial year in which the order sought to be revised was passed.

Analysis:

Issue 1: Validity of the notice under Section 263 of the IT Act
The appellant, a partnership firm, challenged a notice issued by the Revenue regarding disallowance of interest paid to a bank in a writ petition. The re-assessment order disallowed the interest paid by the appellant, which was accepted by them, and the tax was paid accordingly. However, the impugned notice raised new issues beyond the disallowed interest, such as bad debts and expenses. The court held that the notice was not a case of 'Change of Opinion' as the issues raised were different from the reassessment. The court disagreed with the single judge's conclusion, stating that the notice dealt with multiple new issues, not just the disallowed interest, and therefore, did not constitute a 'Change of Opinion'.

Issue 2: Limitation period under Section 263(2) of the IT Act
The appellant contended that the notice was barred by limitation under Section 263(2) as it was issued beyond two years from the end of the financial year in which the original assessment was made. The court agreed with the appellant, emphasizing that the limitation period should be calculated from the date of the original assessment, not the re-assessment. Since the notice was issued after the prescribed period from the original assessment date, it was held to be time-barred. The court cited the Alagendran Finance case to support this interpretation.

Conclusion:
The court allowed the writ appeal, setting aside the order of the single judge and quashing the impugned notice issued by the Revenue as it was found to be beyond the limitation period prescribed by Section 263(2) of the IT Act.