2013 (7) TMI 585 - HC - Income Tax

Revision u/s 263 - Period of limitation - Whether period of limitation will commence from first order of assessment or second order of re-assessment - Held that - Commissioner of Income-Tax exercising its revisional jurisdiction reopened the order of assessment only in relation to lease equalisation fund which being not the subject of the reassessment proceedings, the period of limitation provided for under sub-section (2) of section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus, been invoked by the Commissioner of Income Tax beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity - once reassessment order was passed, original underassessment was set aside, to the extent of underassessment but not in respect of matters covered by the original assessment and not subject matter of reassessment proceedings or order - Following decision of Commissioner of Income Tax versus Alagendran Finance Limited 2007 (7) TMI 304 Supreme Court - Decided against Revenue.

Summary

Issues:
1. Time limitation under Section 263(2) of the Act for passing revision orders.
2. Determining the starting point for limitation under Section 263(2) of the Act.
3. Application of the doctrine of merger in reassessment proceedings.

Analysis:
1. The High Court dealt with the issue of time limitation under Section 263(2) of the Act for passing revision orders. The Commissioner of Income Tax issued an order under Section 263 for failure to deduct TDS, invoking Section 40(a)(ia) for disallowances. The critical question was whether the first assessment order dated 31st December, 2007, or the second order under Section 147 dated 10th December, 2009, would mark the commencement of the limitation period under Section 263(2) of the Act.

2. The court analyzed the two orders and concluded that the order under Section 263 would be time-barred if the starting point was considered to be the first assessment order. However, if the second order under Section 147/143(3) was taken as the starting point, the revision order would fall within the time limit. The court emphasized that the subject matter of the additions made in the revision order was not addressed in the reassessment order, indicating that the limitation period should begin from the date of the first or original assessment order.

3. The judgment referred to the doctrine of merger, stating that once a reassessment order is passed, the original underassessment is set aside only to the extent of underassessment, not for matters covered by the original assessment and not subject to reassessment. Citing precedents like Hind Wire Industries Limited v. CIT and Commissioner of Income Tax v. Sun Engineering Works Private Limited, the court held that the doctrine of merger would not apply in such cases. The judgment dismissed the appeal, affirming the application of the doctrine of merger and the starting point for the limitation period under Section 263(2) of the Act.