2022 (4) TMI 1115 - AT - Income Tax

Revision u/s 263 by CIT - claim of deductions under sections 80-IA and 80- IB - figure of losses in respect of MBF unit for the assessment years 2003-04 and 2004-05 was not ascertainable - separate books of accounts were not being maintained in respect of MBF unit and therefore, MBF unit was not eligible for deduction under section 80-IB - Arguments of the Assessee that revisionary order u/s 263 is barred by limitation - HELD THAT - We find that the original assessment u/s 143(3) was completed on 31.12.2007. The reassessment u/s 148 has been completed on 04.03.2013. The order u/s 263 was passed on 27.03.2015. The order passed u/s 148 relates to deduction u/s 80IB of MBF unit and reduction of accumulated losses up to the Assessment Year 2004-05 while allowing the deduction u/s 80IB in 80IA which has been duly taken into consideration earlier during the original assessment proceedings. We find that the AO has prejudiced the accumulated losses of 8.83 crores and also considered the profit of MBF unit which has claimed 100% deduction u/s 80IB earlier. Thus, the issue of eligible of deduction u/s 80IA and 80IB in respect of various units of the assessee including MBF unit which is a subject matter of u/s 263 is not an issue before the AO during the reassessment proceedings The subject matter of the deduction in the reassessment order was the quantum of deduction but not the eligibility of the deduction and even in that case also the deduction pertaining to MBF unit but not other units whereas the revisionary proceedings dealt extensively with the eligibility of the deduction per se maintenance of separate books of accounts change of opinion by the CIT where the Ld. CIT and also the contrary reviews taken by the DRP for the successive assessment years allowing the deduction. The revisionary proceedings cannot go beyond the issue of the reassessment proceedings. In case, if any issue out of the original assessment is to be revised the limitation time for passing of such order would recon from 31.12.2007. Since the issues raised by the Ld. CIT in the order passed u/s 263 do not emanate from the assessment order dated from 04.03.2013, we hereby hold that the order of the Ld. CIT has not been held to be legally valid. Appeal of assessee allowed.

Issues Involved:
1. Jurisdiction and legality of the order under section 263 of the Income-tax Act, 1961.
2. Limitation period for revising the assessment order.
3. Examination of eligibility and quantum of deduction under sections 80-IA and 80-IB.
4. Maintenance of separate books of accounts for eligible units.
5. Principles of natural justice and opportunity of being heard.
6. Merger of assessment order with appellate orders.
7. Twin conditions of section 263: assessment order being erroneous and prejudicial to the interests of the Revenue.

Detailed Analysis:

1. Jurisdiction and Legality of the Order under Section 263:
The assessee challenged the jurisdiction of the CIT in passing the order under section 263, arguing that the CIT sought to revise the original assessment order dated 31.12.2007 under the guise of revising the reassessment order dated 04.03.2013. The reassessment order was passed under section 147/143(3) on the limited issue of quantum of deduction under section 80-IB concerning the MBF unit only. The CIT’s order was deemed without jurisdiction and illegal as it addressed issues arising from the original assessment order, which were not part of the reassessment proceedings.

2. Limitation Period for Revising the Assessment Order:
The assessee argued that the original assessment was completed on 31.12.2007, and the time limit for revising this order under section 263(2) expired on 31.03.2010. The reassessment order dated 04.03.2013 dealt only with the quantum of deduction under section 80-IB for the MBF unit and not the eligibility of deductions under sections 80-IA and 80-IB for other units. Citing the Supreme Court's decision in CIT vs. Alagendran Finance Ltd., it was argued that the limitation period should be counted from the date of the original assessment order, making the revisionary order time-barred.

3. Examination of Eligibility and Quantum of Deduction under Sections 80-IA and 80-IB:
The assessee contended that the eligibility for deductions under sections 80-IA and 80-IB was extensively examined during the original assessment and subsequent appellate proceedings. The CIT’s revisionary jurisdiction on these issues was challenged as they had already been settled in earlier years and subsequent assessments. The CIT(A) and ITAT had also examined these deductions, and thus, the assessment order stood merged with their orders.

4. Maintenance of Separate Books of Accounts for Eligible Units:
The CIT alleged that the assessee did not maintain separate books of accounts for the MBF unit, making it ineligible for deduction under section 80-IB. The assessee argued that there is no legal mandate to maintain separate books of accounts in conventional form for eligible undertakings. The DRP had adjudicated this issue in favor of the assessee for AY 2013-14, 2014-15, and 2015-16, holding that submission of Form 10CCB was sufficient.

5. Principles of Natural Justice and Opportunity of Being Heard:
The assessee claimed that the CIT passed the order under section 263 without affording a reasonable opportunity of being heard, violating principles of natural justice. The CIT failed to dispose of legal objections by passing a separate speaking order, rendering the revisionary proceedings illegal and bad in law.

6. Merger of Assessment Order with Appellate Orders:
The assessee argued that the issue of deductions under sections 80-IA and 80-IB had merged with the orders of the CIT(A) and ITAT. Citing various judicial precedents, it was contended that once an issue is considered by the appellate authorities, it cannot be subjected to revision under section 263.

7. Twin Conditions of Section 263:
The assessee contended that the reassessment order was neither erroneous nor prejudicial to the interests of the Revenue, failing the twin conditions required for invoking section 263. The reassessment order was passed after due application of mind by the AO, and the CIT’s order was based on mere suspicion without concrete evidence. The reassessment proceedings were initiated on a change of opinion, making them without jurisdiction, illegal, and bad in law.

Conclusion:
The ITAT allowed the appeal of the assessee, holding that the CIT’s order under section 263 was not legally valid. The revisionary proceedings were found to be beyond the scope of the reassessment proceedings, and the issues raised by the CIT did not emanate from the reassessment order dated 04.03.2013. The ITAT concluded that the CIT’s order was barred by limitation and lacked jurisdiction, as the issues addressed had already been settled in earlier assessments and appellate proceedings. The principles of natural justice were also found to be violated. The appeal was allowed, and the order pronounced on 16th November 2021.

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