2013 (11) TMI 370 - AT - Income Tax

Whether proceedings initiated u/s 263 of the Act is time barred as it is beyond the period of two years from the end of the financial year in which the original assessment order u/s 143(3) of the Act was passed Whether the limitation u/s 263 begin to run from the original assessment order u/s 143(3) or from the re-assessment order u/s 147 of the Act Held that - Reliance has been placed on the judgment in the case of CIT vs. Alagcndran Finance Ltd. 2007 (7) TMI 304 - SUPREME Court - ratio laid down by the Hon ble Supreme Court, the limitation prescribed u/s 263(2) of the Act would begin to run from the original assessment order and not from the re-assessment order - The Hon ble Court further held that the scope of reassessment cannot be extended to the extent of the issues which were never subject matter of re-assessment; hence the doctrine of merger would not apply Ratio laid down by Bombay High Court in the case of CIT vs. ICICI Bank Ltd. 2012 (2) TMI 308 - BOMBAY HIGH COURT , issues on which the CIT invoked jurisdiction u/s 263 were never subject matter of reassessment proceedings, the notice issued u/s 263 of the Act on 26-11-2008 from the end of the financial year 2004-05 is barred by limitation and consequently the order passed u/s 263 of the Act is also invalid - Order passed u/s 263 by the CIT being void ab initio Decided in favor of Assessee.

Issues Involved:
1. Whether the order passed under section 263 of the Income Tax Act is barred by limitation.
2. Whether the reassessment proceedings under section 147 were validly initiated.
3. Whether the Assessing Officer correctly computed the deduction under section 80IA by excluding certain incomes.

Detailed Analysis:

Issue 1: Limitation of Order under Section 263
The primary contention was that the order passed under section 263 of the Income Tax Act was beyond the prescribed time limit. The assessee argued that the original assessment order was passed on 26-10-2004, and the notice under section 263 was issued on 26-11-2008, which is beyond the two-year limit specified in section 263(2). The department argued that the limitation should be counted from the reassessment order dated 31-12-2007. The Tribunal held that the limitation period should begin from the original assessment order since the issues raised in the section 263 notice were not part of the reassessment proceedings. Citing the Supreme Court and Bombay High Court judgments, the Tribunal concluded that the order under section 263 was barred by limitation and thus legally unsustainable.

Issue 2: Validity of Reassessment Proceedings under Section 147
The reassessment was initiated on the grounds that the assessee did not offer the reimbursement of income tax receivable from APTRANSCO and claimed a deduction under section 80IA for excess insurance premium received, which was not eligible. The Tribunal noted that the reassessment was completed based on these specific grounds, and the issues raised in the section 263 notice were not part of the reassessment. This distinction was crucial in determining the limitation period for the section 263 order.

Issue 3: Computation of Deduction under Section 80IA
The CIT directed the Assessing Officer to recompute the deduction under section 80IA by excluding prior period income and foreign exchange fluctuation gains. The Tribunal observed that these amounts were considered in the original assessment and were not part of the reassessment proceedings. Therefore, any error in the original assessment should have been addressed within the limitation period from the original assessment order, not the reassessment order. The Tribunal held that the reassessment order could not be deemed erroneous and prejudicial to the interests of revenue for issues not considered during reassessment.

Conclusion:
The Tribunal allowed the appeal, holding that the order under section 263 was barred by limitation and thus invalid. Consequently, the other grounds raised by the assessee became academic and were not adjudicated upon. The appeal was allowed, and the order under section 263 was set aside.

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