2021 (12) TMI 1256 - AT - Income Tax

Revision u/s 263 - period of limitation - reopening of assessment u/s 147 - assessee had claimed accumulation u/s.11(2) for which the assessee had not submitted Form No.10 and hence, the said accumulation should be disallowed - receipt of consultancy fees - HELD THAT - Admittedly, the receipt of consultancy fees has been duly reflected in the income and expenditure filed by the assessee along with the original return of income filed on 25/03/2009. So, the Assessing Officer had two innings - once during the original scrutiny assessment proceedings and again during the re-assessment proceedings to examine the aspect of receipt of consultancy fees. In the re-assessment proceedings whatever that was sought to be verified by the ld. AO had been duly verified in the final re-assessment order. Hence, there cannot be any error that could be attributed in the order of re-assessment of the ld. AO. In the instant case, the receipt of consultancy fee does not fall within the ambit of expression income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of proceedings under this Section , as the consultancy receipts was very much disclosed by the assessee in the income and expenditure account which was filed along with the original return of income itself. If at all there is any error in the assessment order framed by the ld. AO, it can only be in the original scrutiny assessment order u/s.143(3) of the Act dated 13/12/2010 and not in the re-assessment order framed u/s.143(3) r.w.s. 147 of the Act dated 22/02/2016. Hence, the show-cause notice issued by the ld. CIT(Exemptions) dated 28/02/2017 is squarely beyond the period of two years from the end of the financial year in which the 143(3) assessment was completed as per Section 263(2) of the Act. Hence, it could be safely concluded that the re-assessment framed by the ld. CIT(Exemptions) on 21/03/2018 is squarely barred by limitation. See ALAGENDRAN FINANCE LTD. 2007 (7) TMI 304 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the order passed by the Commissioner of Income Tax (Exemptions) under section 263 of the Act for A.Y. 2008-09 was barred by limitation.
2. Whether the reassessment proceedings initiated under section 147 of the Act were valid.
3. Whether the consultancy fee received by the assessee should be considered as business income.

Issue-wise Detailed Analysis:

1. Limitation of the Order under Section 263:
The primary issue raised by the assessee was that the order passed by the Commissioner of Income Tax (Exemptions) under section 263 of the Act for A.Y. 2008-09 was barred by limitation. The original assessment was completed under section 143(3) on 13/12/2010. The reassessment was completed on 22/02/2016. The show-cause notice under section 263 was issued on 28/02/2017, and the revision order was passed on 21/03/2018. The Tribunal observed that the consultancy fee of ?75,65,833/- was duly reflected in the income and expenditure account filed with the original return of income. The Assessing Officer had two opportunities to examine this aspect during the original and reassessment proceedings. The Tribunal held that any error in the assessment order could only be in the original scrutiny assessment order dated 13/12/2010 and not in the reassessment order dated 22/02/2016. Therefore, the show-cause notice issued on 28/02/2017 was beyond the period of two years from the end of the financial year in which the original assessment was completed, making the revision order barred by limitation. This conclusion was supported by the Supreme Court's decision in CIT vs. Alagendran Finance Ltd., which clarified that the doctrine of merger does not apply when the subject matter of reassessment is distinct from the original assessment.

2. Validity of Reassessment Proceedings under Section 147:
The reassessment for A.Y. 2008-09 was initiated by issuing a notice under section 148 after recording reasons that the assessee had not submitted Form No. 10 for the claimed accumulation under section 11(2) and that the amount transferred to the development fund was not an application of funds for charitable purposes. The reassessment order excluded the amount transferred to the development fund and determined the application of funds accordingly. However, the Tribunal found that the reassessment proceedings were validly initiated and completed, and the issues raised during the reassessment were duly verified by the Assessing Officer.

3. Consultancy Fee as Business Income:
The Commissioner of Income Tax (Exemptions) initiated section 263 proceedings on the ground that the consultancy fee received by the assessee amounting to ?75,65,833/- should be considered as business income, similar to the treatment in A.Y. 2013-14. The Tribunal noted that the consultancy fee was disclosed in the income and expenditure account filed with the original return of income. Since the Assessing Officer had already examined this aspect during the original and reassessment proceedings, there was no error in the reassessment order that could be attributed to the Assessing Officer. The Tribunal held that the issue of consultancy fee did not fall within the ambit of "income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of proceedings under this Section," as the consultancy receipts were disclosed in the original return of income.

Conclusion:
The Tribunal concluded that the order passed by the Commissioner of Income Tax (Exemptions) under section 263 was barred by limitation and quashed the revision order. As a result, the other grounds raised by the assessee were declared infructuous. The appeal of the assessee was allowed, and the order was pronounced on 23/12/2021 by way of proper mentioning on the notice board.