2022 (10) TMI 418 - AT - Income Tax

Revision u/s 263 - period of limitation - to be computed from the date of original assessment order or re-assessment order - compensation whether to be taxed in the hands of the assessee or assessee is entitled or not entitled to claim loss - Reopening of assessment as contemplated under section 147 concluded against assessee - HELD THAT - The ratio laid down in Alagendran Finance Ltd. 2007 (7) TMI 304 - SUPREME COURT and Ashoka Buildcon 2010 (4) TMI 152 - BOMBAY HIGH COURT clinches the issue in favour of the assessee. Further, a reading of the original assessment order would reveal that the issue relating assessment in term of s. 2(24)(iv) of the Act, of Rs.1.16 crores was a subject matter therein. Thus, in the aforesaid scenario, the assessment order passed under section 143(3) r.w.s. 147 of the Act cannot be considered as erroneous and prejudicial to the interest of revenue to subject it to proceeding under section 263 of the Act. If, at all, any order of the subordinate authority which could have been considered as erroneous and prejudicial to the interest of revenue in allowing, either due to lack of enquiry or otherwise, is the original assessment order passed under section 143(3) of the Act and not the re-assessment order. Therefore, the period of limitation prescribed under section 263(2) of the Act would run from the original assessment order. Being conscious of the fact that the original assessment order could not be revised under section 263 of the Act due to bar of limitation, as provided under sub section (2) of section 263 of the Act, PCIT, as it appears, has proceeded to revise the assessment order passed under section 143(3) r.w.s. 147 of the Act to get over the hurdle of limitation. This, in our view, is impermissible. Thus, based on the foregoing reasoning, we hold that the impugned order of PCIT revising the order passed under section 143(3) r.w.s. 147 of the Act is unsustainable. Appeal of assessee allowed.

Summary

Issues Involved:
1. Whether the revision order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961, is barred by limitation.
2. Whether the PCIT erred in invoking the provisions of section 263 in respect of the assessment order passed under section 147 read with section 143(3), where the issue of claim of loss by the appellant was not the subject matter of the reassessment order.
3. Whether the doctrine of merger applies where the subject matter of reassessment and the original order of assessment are not one and the same.

Detailed Analysis:

Issue 1: Limitation of Revision Order under Section 263
The appellant contended that the revision order passed by the PCIT under section 263 is barred by limitation. The original assessment order was passed on 28.12.2016, and the reassessment order was passed on 23.11.2019. The PCIT issued a show-cause notice on 21.09.2021 and passed the revision order on 18.11.2021. The Tribunal noted that the time limit for revising the original assessment order had expired, whereas the time limit for revising the reassessment order was still available. The Tribunal referenced the Supreme Court's decision in CIT v. Alagendran Finance Ltd. and the Jurisdictional High Court's decision in Indira Industries v. PCIT, concluding that the revision order is barred by limitation as the issue was part of the original assessment and not the reassessment.

Issue 2: Invocation of Section 263 Provisions
The appellant argued that the PCIT erred in invoking section 263 for the reassessment order, as the issue of the claim of loss was not part of the reassessment but was addressed in the original assessment. The Tribunal observed that the reasons recorded for reopening the assessment under section 147 were specific to cash deposits and did not include the issue of compensation of Rs. 1.16 Crore. The Tribunal stated that the assessing officer can assess other incomes that come to notice during reassessment proceedings, but in this case, the issue of compensation was not part of the reassessment proceedings. Hence, the PCIT's invocation of section 263 was inappropriate.

Issue 3: Doctrine of Merger
The Tribunal examined whether the doctrine of merger applies where the subject matter of reassessment and the original assessment are different. The Tribunal noted that the issue of compensation was addressed in the original assessment order and not in the reassessment. Citing the Supreme Court's decision in Alagendran Finance Ltd., the Tribunal held that the doctrine of merger does not apply in this case, as the reassessment was for a different issue. The Tribunal concluded that the PCIT's attempt to revise the reassessment order to address an issue from the original assessment was impermissible.

Conclusion:
The Tribunal quashed the revision order passed by the PCIT under section 263, holding it unsustainable due to being barred by limitation and the inappropriate invocation of section 263 for an issue not part of the reassessment. The appeal of the assessee was allowed.