2019 (3) TMI 2079 - AT - Income Tax

Revision u/s 263 - period of limitation - as per CIT subjected reassessment order passed u/s 143(3)/147 was without making proper enquiries w.r.t. the share capital and share premium - second reopening of the assessment AO again proposed to make the addition in respect of the accommodation entries received on account of share capital and share premium from six companies HELD THAT - Even if an order of assessment is reopened the whole proceedings would start afresh but it would not disturb the issues which were not subject-matter of reopening of the assessment and even not falling under the purview of Expln. 3 to s. 147 of the Act. Therefore for the purpose of limitation under s. 263(2) if the jurisdiction under s. 263 is invoked on an issue which was not subject-matter of reassessment then the limitation would reckon from the original assessment order and not from the reassessment order. Accordingly limitation as provided u/s 263(2) being two years from the end of the financial year would reckon from the original assessment order passed u/s 143(3) on 15th Dec 2010 and not from the subsequent reassessment order. Accordingly the impugned order is invalid being without jurisdiction as the time-limit for passing the order was already expired. Hence the same is quashed being invalid. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the order dated 5th March 2018, passed under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (CIT), Ajmer, is barred by limitation.
• Whether the Principal CIT erred in invoking the provisions of Section 263 of the Income Tax Act and whether the order should be quashed on this basis.
• Whether the Principal CIT correctly assumed jurisdiction under Section 263 by holding that the reassessment order dated 30th March 2016 was passed without proper inquiries into the share capital and share premium received by the assessee.
• Whether the reassessment order was set aside due to a change of opinion, which is not permissible under Section 263.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation under Section 263

• Relevant Legal Framework and Precedents: Section 263 of the Income Tax Act allows the Principal CIT to revise an order if it is erroneous and prejudicial to the interests of the revenue. The limitation for invoking Section 263 is two years from the end of the financial year in which the order sought to be revised was passed.
• Court's Interpretation and Reasoning: The Tribunal examined whether the limitation should be reckoned from the original assessment order under Section 143(3) dated 15th December 2010 or from the reassessment order dated 30th March 2016. The Tribunal referred to precedents, including decisions from the Bombay High Court and the Supreme Court, which establish that the limitation period begins from the original assessment order if the issues were not part of the reassessment.
• Key Evidence and Findings: The Tribunal found that the issues on which Section 263 was invoked were not part of the reassessment proceedings. The reassessment focused on specific share applicants based on information from the Dy. Director of IT, Mumbai, and did not cover the remaining 22 share applicants.
• Application of Law to Facts: The Tribunal applied the principle that the limitation for Section 263 should be reckoned from the original assessment order when the issues were not part of the reassessment proceedings.
• Treatment of Competing Arguments: The Tribunal rejected the Departmental Representative's argument that the reassessment order should reset the limitation period for all issues.
• Conclusions: The Tribunal concluded that the order under Section 263 was barred by limitation as the limitation period should be reckoned from the original assessment order dated 15th December 2010.

Issue 2: Invocation of Section 263

• Relevant Legal Framework and Precedents: Section 263 can be invoked if the order is erroneous and prejudicial to the interests of the revenue. The CIT must demonstrate that the order lacked proper inquiry or verification.
• Court's Interpretation and Reasoning: The Tribunal noted that the Principal CIT invoked Section 263 on the basis of lack of inquiry regarding the share capital and premium from 22 parties, which was not the subject matter of the reassessment.
• Key Evidence and Findings: The Tribunal found no new material or information suggesting the transactions with the 22 parties were bogus. The reassessment was limited to specific parties identified by the Dy. Director of IT, Mumbai.
• Application of Law to Facts: The Tribunal held that the CIT's invocation of Section 263 was based on a lack of inquiry that should have been addressed in the original assessment, not the reassessment.
• Treatment of Competing Arguments: The Tribunal considered the Departmental Representative's argument regarding the AO's lack of inquiry but found it unsubstantiated in the context of the reassessment.
• Conclusions: The Tribunal held that the invocation of Section 263 was not justified as it was based on issues not covered by the reassessment and was barred by limitation.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The limitation period for invoking Section 263 should be reckoned from the original assessment order if the issues were not part of the reassessment. The CIT cannot invoke Section 263 based on issues not covered by the reassessment.
• Final Determinations on Each Issue: The Tribunal quashed the order under Section 263 as it was barred by limitation and lacked jurisdiction. The Tribunal did not address the merits of the issues as the order was invalid.