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TMI Blog2013 (11) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Act and book profit of Rs.69,85,32,950/- under the provisions of section 115JB of the Act. In course of scrutiny assessment proceedings initiated by issuance of notice u/s 143(2) of the Act, the Assessing Officer after verifying the books of accounts and other information noticed that the assessee had added a sum of Rs.11,08,69,955/- being prior period adjustment. This amount of Rs.11,08,69,955/- also includes an amount of Rs.31,21,210/- being foreign exchange variation gain for the financial year 2000-01 relevant to the assessment year 2001-02. It was explained by the assessee that since the said amount of Rs.31,21,210/- has already been accepted in the assessment year 2001-02, it has to be excluded in the assessment year under consideration. The Assessing Officer finding the same to be correct reduced the same from total income. Further, the Assessing Officer while examining the assessee's claim u/s 80IA of the Act noticed that certain income which was considered for the purpose of claiming deduction u/s 80IA was not derived from the activities of the undertaking of generation of power. The Assessing Officer therefore making certain adjustments to the claim of deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed for the impugned assessment year as the Assessing Officer has failed to exclude the prior period income and foreign exchange variation while computing deduction u/s 80IA of the Act. The assessee in its reply to the show cause notice submitted that the excess insurance premium of Rs.1,37,80,234/- was rightly excluded by the Assessing Officer while computing the deduction u/s 80IA of the Act, hence, the proceedings u/s 263 of the Act cannot be initiated. It was further submitted by the assessee that the Assessing Officer has finally completed the assessment under the provisions of section 115JB and therefore there was no prejudice to the interests of revenue as the income u/s 115JB is not to be sought to be revised in the proceedings initiated u/s 263 of the Act. So far as gain on account of foreign exchange fluctuations is concerned, it was submitted by the assesses that the two amounts of Rs.1,80,64,366/- and Rs.70,94,260/- totalling to Rs.2,51,58,626/- represented the surplus or deficit in the foreign exchange variation account credited at the end of the financial year. Hence, it forms part of sale revenue and should be considered as income derived from business. After receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 263 of the Act is not the subject matter for reopening the assessment but was the issue decided in the original assessment therefore the assessment order which can be subject to the proceedings u/s 263 of the Act, is the original assessment order dated 26-10-2004 and not the reassessment order passed u/s 143(3) read with section 147 of the Act. It was therefore contended by the assesssee that since the notice issued u/s 263 of the Act is dated 26-11-2008 it is therefore beyond the time limit of 2 years prescribed u/s 263 of the Act as the original assessment was completed on 26-10-2004. The CIT however rejected the contention of the assessee by holding that when the assessment is reopened u/s 147 of the Act, the entire assessment is open before the Assessing Officer and he can make enquiry and if justified make additions other than the escaped income as per the reasons recorded while reopening the assessment. In this context, the CIT relied on two judgments of Hon'ble Supreme Court in case of V. Janardhan Reddy and Others vs. CIT 75 ITR 373 and in case of Mewalal Dwaraka Prasad (176 ITR 529). With the aforesaid observation, the CIT rejected the assessee's contention with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to the original assessment order and not the re-assessment order. He therefore contended that the notice u/s 263 of the Act having been issued beyond two years from the end of the financial year in which the regular assessment order was passed, is barred by limitation and therefore invalid. 11. The learned AR referring to the letter dated 9-8-2004 issued by the Assessing Officer during the original assessment proceedings submitted that the Assessing Officer being conscious of the prior period income of Rs. 11,08,69,955/- in the context of deduction claimed u/s 80IA of the Act had called for information from the assessee. The assessee in response furnished a detailed information vide letter dated 24-9-2004 and the Assessing Officer after properly verifying the facts and material had accepted the assessee's claim and completed the assessment accordingly. It was therefore submitted that the issue raised in the proceedings u/s 263 of the Act not being the subject matter of reassessment proceedings, the issuance of notice beyond two years from the end of the financial year in which the original assessment order was passed is barred by limitation. In this context, the learned AR re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the income-tax paid by it. As per the provisions of the Income Tax Act, the income tax received/ receivable is the income of the assessee. However, the assessee neither offered the same as income from other sources nor credited to the sales revenue. Therefore, the income of the assessee is under stated to that extent. As per note 9 of the schedule L to the annual accounts, the provision for taxation was made taking into consideration of income tax receivable from TRANSCO. As discussed in the assessment order for the a.y. 2003-04,the income tax receivable from the TRANSCO is taxable, not only under normal provisions of the Act but also u/s 115JB of the Act. The assessee's treatment of income tax receivable like the sale taxi excise duty collection and setting off the same against the tax payments is not correct. The income tax receivable/received is nothing but the additional income to the assessee arrived at as per accounts. Therefore, the same has to be added to the income arrived at as per P&L A/c. As discussed in the assessment order for the a.y, 2003-04. While the provision for income tax required was Rs.5,34,37,770/-,the assessee made the provision at Rs.2,93,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly submitted in response to the questionnaire issued by the Assessing Officer during the original assessment proceedings would confirm the fact that the aforesaid two amounts were considered by the Assessing Officer while completing the assessment u/s 143(3) of the Act vide assessment order passed on 26-10-2004. It is also a fact very much evident on record that these amounts were never subject matter of reopening of assessment as per the reasons recorded. In the aforesaid circumstances, if at all any prejudice has been caused to the revenue on account of erroneous order passed by the Assessing Officer, then that order is the original assessment order dated 26-10-2004 and not the order passed u/s 143(3) read with section 147 of the Act on 31-12-2007. Therefore, in our view, the limitation of two years period prescribed u/s 263 of the Act should begin to run from the end of the financial year in which the order was passed u/s 143(3) of the Act on 26-10-2004 and not from the re-assessment order passed u/s 143(3) read with section 147 of the Act on 31-12-2007 as under no circumstances, the reassessment order can be said to be erroneous and prejudicial to the interests of revenue. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The counsel submits that as a result of the insert ion of Explanation 3, once an assessment is reopened, the Assessing Officer is entitled to assess or reassess the income in respect of any issue which has escaped assessment though the reasons in respect of such issue have not been included in the reasons recorded under Section 148(2). On this basis it is urged that when the Assessing Officer reopened the assessment on 26 March 2002 the entire assessment was at large and hence he ought to have applied the amended provisions of Section 36(1)(vii) particularly the explanation thereto. 7. This aspect of the matter has been considered in a judgment of a Division Bench of this Court in Ashoka Buildcon Ltd. v. Asstt. CIT (2010) 325 ITR 574/191 Taxman 29. The Division Bench considered a similar submission based on Explanation 3 which was inserted in Section 147 by the Finance Act of 2009 with retrospective effect from 1/4/1989. Negativing the submission. the Division Bench held as follows: " ... Where a reassessment has been made pursuant to a notice under Section 148 the order of reassessment prevails in respect of those items which for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der under sub-section (1) has to be passed. Under sub-section (2) no order under Section 263(1) can be made after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. The order of assessment under Section 143(3) in the present case allowed the deduction which was claimed under Section 36(1)(vii). Section 36(1)(viia) and in respect of foreign exchange rate difference. Neither in the first order of reassessment dated 22 February, 2000 nor in the second order of reassessment dated 26 March 2002 were these aspects determined. In other words on the aforesaid three issues, the original order of assessment dated 10th March, 1999 passed under Section 143(3) continued to hold the field. Once that is the position, then clearly the doctrine of merger would not apply. The order under Section 143(3) passed on 10 March 1999 cannot stand merged with the orders of reassessment in respect of those issues which did not form the subject matter of the reassessment. Consequently, Explanation 3 to section 147 will not alter that position. Explanation 3 only enables the Assessing Officer, once an assessment is reopened, to assess or reassess the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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