2010 (4) TMI 152 - HC - Income Tax

Power to revise an order u/s 263 period of limitation to revise an order by CIT - On 30 October 2005 the return was revised. - On 27 December 2007 an order of reassessment was passed under Section 143(3) read with Section 147 in terms of which the claim under Section 72A was disallowed. - On 30 April 2009 the Commissioner of Income Tax-I, Nasik issued notice by which the powers conferred by Section 263 are sought to be invoked. It has been observed that the assessment order passed on 27 December, 2007 for assessment year 2004-05 was erroneous and prejudicial to the interests of the Revenue. Held that The substantive part of Section 147 as well as Explanation 3 enables the Assessing Officer to assess or reassess income chargeable to tax which he has reason to believe had escaped assessment and other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. There is nothing on the record of the present case to indicate that there was any other income which had come to the notice of the Assessing Officer as having escaped assessment in the course of the proceedings under Section 147 and when he passed the order of reassessment. The Commissioner, when he exercised his jurisdiction under Section 263, in the facts of the present case, was under a bar of limitation since limitation would begin to run from the date on which the original order of assessment was passed. We must however clarify that the bar of limitation in this case arises because the revisional jurisdiction under Section 263 is sought to be exercised in respect of issues which did not form the subject matter of the reassessment proceedings under Section 143(3) read with 147

Issues Involved:
1. Validity of the notice issued under Section 263 of the Income Tax Act, 1961.
2. Limitation period for exercising revisional jurisdiction under Section 263.
3. Applicability of the doctrine of merger in reassessment proceedings.
4. Scope of reassessment under Section 147 and its impact on revisional jurisdiction under Section 263.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 263 of the Income Tax Act, 1961:
The petitioner challenged a notice issued by the Commissioner of Income Tax-I, Nashik on 30 April 2009, seeking to exercise revisional jurisdiction under Section 263 of the Income Tax Act, 1961. The notice claimed that the assessment order dated 27 December 2007 was erroneous and prejudicial to the interests of the Revenue. The petitioner argued that the notice was, in substance, an attempt to revise the original assessment order dated 27 December 2006, which was beyond the permissible period of limitation.

2. Limitation period for exercising revisional jurisdiction under Section 263:
The Court observed that the original order of assessment under Section 143(3) dated 27 December 2006 was reopened solely on the basis that the benefit of Section 72A was wrongly allowed. The reassessment order dated 27 December 2007 disallowed the claim under Section 72A. The impugned notice dated 30 April 2009 raised issues unrelated to the grounds on which the original assessment was reopened. The Court held that the period of limitation for exercising revisional jurisdiction under Section 263 would commence from the date of the original assessment order, not the reassessment order, as the issues raised in the notice did not form part of the reassessment proceedings. The limitation period for revising the original assessment order expired on 31 March 2009, making the notice issued on 30 April 2009 barred by limitation.

3. Applicability of the doctrine of merger in reassessment proceedings:
The Court referred to the Supreme Court judgment in Commissioner of Income Tax V/s. Alagendran Finance Ltd., which held that the doctrine of merger does not apply where the subject matter of reassessment and the original assessment is not the same. The Court noted that in the present case, the reassessment was confined to the issue of Section 72A, and other issues raised in the notice under Section 263 were not part of the reassessment. Therefore, the original assessment order continued to hold the field for those issues, and the period of limitation would run from the date of the original assessment order.

4. Scope of reassessment under Section 147 and its impact on revisional jurisdiction under Section 263:
Section 147 empowers the Assessing Officer to assess or reassess income that has escaped assessment. Explanation 3 to Section 147 allows the Assessing Officer to assess or reassess any issue that comes to notice during the proceedings, even if it was not included in the reasons recorded under Section 148(2). The Revenue argued that issues not dealt with in the reassessment order should be deemed to have been addressed, and any omission could be revised under Section 263. The Court rejected this argument, stating that the substantive part of Section 147 and Explanation 3 enable the Assessing Officer to assess or reassess income that comes to notice during proceedings. However, there was no indication that any other income had come to notice during the reassessment proceedings in the present case. Thus, the revisional jurisdiction under Section 263 was barred by limitation for issues not forming part of the reassessment.

Conclusion:
The Court concluded that the exercise of revisional jurisdiction under Section 263 was barred by limitation, as the notice sought to revise issues unrelated to the reassessment proceedings. The rule was made absolute, and the impugned notice dated 30 April 2009 was set aside. The Court clarified that this decision would not preclude the Revenue from taking recourse to any other remedy available in law.

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