2022 (7) TMI 1096 - HC - Income Tax

Revision u/s 263 - Period of limitation - Reopening of assessment u/s 147 - HELD THAT - As in response to show cause notice inter alia took a stand that the revisional power could not be exercised in view of the Bar of limitation as contained in Section 263(2) which provides that no Order could be revised after the expiry of two years from the end of the financial year, in which the Order sought to be revised was passed. CIT, however, did not accept the stand of the assessee and set aside the Order passed under Section 143(3) dated 14 December 2007 read with Order dated 16 November 2009 under Section 147 holding the same to be erroneous and prejudicial to the interest of revenue. This Order came to be challenged before ITAT, who vide its Order dated 16 January 2017 allowed the Appeal of the assessee on the ground that Order passed by CIT was passed on 31 March 2011 under Section 263(1) and was, therefore, barred by limitation, as such an Order could be passed only upto 31 March 2010, considering the fact that the Order that was sought to be revived by CIT was passed by AO on 14 December 2007. Not only this, the ITAT held on a question of fact that no notice in terms of Section 263(1) was served on the assessee in respect of the Order passed u/s 143(3) read with Section 147 dated 16 November 2009 and the show cause notice dated 18 March 2011 was only in respect of Order of assessment under Section 143(3) of the Act. We are of the view that the view expressed by ITAT does not warrant any interference and it was rightly held that the Order impugned passed by CIT was barred by limitation in terms of Section 263(2).

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1961 regarding revision of assessment orders.
2. Application of the limitation period under Section 263(2) for revising orders.
3. Validity of show cause notice issued by the Commissioner of Income Tax.

Analysis:

1. The primary issue in this case revolves around the interpretation of Section 263 of the Income Tax Act, 1961, which empowers the Commissioner of Income Tax to revise assessment orders that are considered erroneous and prejudicial to the revenue's interest. The key question before the court was whether the Tribunal was correct in quashing the Order under Section 263 without considering the relevant portions of the Order passed by the Principal CIT-10. The court framed a substantial question of law regarding the correctness of the Tribunal's decision in this regard.

2. The material facts of the case indicate that the assessment for the year 2005-06 was initially completed under Section 143(3) on a certain income. Subsequently, the assessment was reopened under Section 147 and completed at a different income level. The Commissioner of Income Tax invoked the revisional powers under Section 263(1) based on discrepancies in the assessment order. The show cause notice highlighted specific issues related to the treatment of certain costs and losses in the Profit & Loss account, leading to an alleged underassessment of income.

3. The Respondent, in response to the show cause notice, raised a defense based on the limitation period prescribed under Section 263(2) of the Act, which restricts the revision of orders after a specified timeframe. The Commissioner, however, proceeded to set aside the assessment order, deeming it erroneous and prejudicial to revenue. The subsequent appeal before the ITAT challenged the Commissioner's decision on the grounds of limitation and proper service of notice.

4. The ITAT, in its order, upheld the Appellant's arguments regarding the limitation period, emphasizing that the Commissioner's Order passed on 31 March 2011 was beyond the permissible timeframe for revision. Additionally, the ITAT noted that the show cause notice did not pertain to the specific order that the Commissioner sought to revise, further strengthening the Appellant's case. Consequently, the ITAT ruled in favor of the Appellant, concluding that the Commissioner's Order was barred by limitation and lacked merit.

5. The High Court, upon considering the facts and legal provisions, concurred with the ITAT's findings and dismissed the Appeal. The Court affirmed that the Commissioner's Order dated 31 March 2011 was indeed time-barred under Section 263(2) of the Act. The Court agreed that the show cause notice did not align with the specific order under scrutiny, thereby upholding the ITAT's decision and emphasizing the importance of adhering to statutory limitations in exercising revisional powers under the Income Tax Act.