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TMI Blog2024 (7) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred in law and on facts assuming jurisdiction in passing the order u/s. 263, more so when the assessment order u/s. 143(3) r.w order u/s. 147 dt. 29.03.2022 was neither erroneous nor prejudicial to the interest of Revenue. Thus, order passed by Ld. Principal CIT(Central) is bad in law, erroneous and may kindly be quashed. 3. Ground 3: That on the Facts and on the circumstance of the case, Hon. Principal CIT(Central) was not justified in law in treating the Assessment Order u/s. 143(3) r.w.s 148 dated 29.03.2022 as erroneous and prejudicial to the interest of the revenue directing AO to reframe the assessment novo after verifying creditworthiness of unsecured loan of Rs. 1,88,56,508/- as well as share capital & share premium of Rs. 2,74,50,810/- and their taxability in view of the provisions of section 68 of the I.T. Act. 4. Ground 4: That on the Facts and on the circumstance of the case, Hon. Principal CIT(Central) was not justified in law and fact in passing the Order u/s 263 by rejecting the submission of the Assessee mechanically based on suspicion and presumptions. 5. Ground 5: That on the Facts and on the circumstance of the case, Hon. Principal CIT(Central) was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been received as unsecured loans from three persons, viz. (a) Shri Baldev Singh : Rs. 18,30,008/-; (b) Smt. Harjeet Kaur : Rs. 1,47,26,500/-; and (c) Shri Jagjeet Singh : Rs. 23,00,000/-. 5. Accordingly, the Pr. CIT vide "Show Cause Notice" (SCN) dated 15.03.2024 called upon the assessee company to explain as to why the order passed by the A.O u/s. 147 r.w.s. 143(3) of the Act dated 29.03.2022 being erroneous and prejudicial to the interest of the revenue may not be revised by him. As the explanation filed by the assessee did not find favour with the Pr. CIT, therefore, he vide his order passed u/s. 263 of the Act dated 30.03.2024 set-aside the assessment order with a direction to the A.O to reframe the assessment after conducting proper enquiries and affording a reasonable opportunity of being heard to the assessee company. 6. The assessee company being aggrieved with the order of the Pr. CIT u/s. 263 of the Act dated 30.03.2024 has carried the matter in appeal before us. 7. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and material available on record as well as considered the judicial pronouncements that hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd. (2011) 331 ITR 236 (Bom) and that of the Hon'ble High Court of Chhattisgarh in the case of ACIT vs Major Deepak Mehta (2012) 344 ITR 641 (C.G.). For the sake of clarity, the observations of the Hon'ble High Court in the case of ACIT vs Major Deepak Mehta (supra) are culled out as under: "17. We have heard learned counsel appearing for the parties, perused the pleadings and the documents appended thereto. 18. Sections 147, 148 & 152 (2) of the Act, 1961 read as under : "147. Income escaping assessment.-If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of Section 148." "148. Issue of notice where income has escaped assessment.-(1) Before making the assessment, reassessment or re-computation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139: Provided that in a case- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and (b) sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, which has escaped assessment for any assessment or there was under assessment or the claimed excessive loss, deduction, allowance or relief in the return, subject to provisions of Sections 148 to 153. The pre- condition to reopen the assessment or recomputation is that the AO should have reason to believe that no income chargeable tax has escaped assessment or under assessment or the claimed excessive loss, deduction, allowance or relief in the return. Thereafter, a notice under Section 148 shall be served on the assessee requiring him to furnish return of the income or income of any other person in respect of which he is assessable under this Act. 20. Sub-section (2) Section 148 provides that before issuing any notice under Section 148 (1), the AO shall record his reasons for doing so. Section 152 (2) provides that the assessee may claim that the proceedings under Section 147 should be dropped on his showing that he had been assessed not lower than what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account, or the assessment or computation had been properly made. 21. Explanation 3 to Section 147, which was insert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not the subject-matter of proceedings under Section 147. An assessee cannot resist validly initiated reassessment proceedings under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under Section 152(2). The words `such income' in Section 147 clearly refer to the income which is chargeable to tax but has "escaped assessment" and the Income Tax Officers' jurisdiction under the section is confined only to such income which has escaped assessment...." 26. In S. Sundaram Pillai (supra), relied on by the learned counsel appearing for the respondent, the Supreme Court has dealt with the Explanation to a statutory provision as under : "(a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in Sun Engineering Works (P) Ltd. (supra) held that the issue was in respect of inclusion of other incomes in addition to that item or items which have led to the issuance of notice under Section 148 and it was found that the AO was right in including other incomes. On the issue as to when the item or items which have led to the issuance of notice under Section 148 has been dropped under Section 152 (2), what would be the stand of the AO was not in issue in the said case. It was further held that the AO cannot reopen the entire assessment except the unescaped income for which the proceedings have been initiated. 34. The Supreme Court in S. Sundaram Pillai (supra), had held, inter alia, that an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment. 35. In the case on hand, the main object and purpose of Section 147 read with Section 148 is that if there is any escaped assessment and the AO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to do something which he could not have lawfully done. 15. At this stage, we may herein observe that the A.O in the backdrop of the facts involved in the present case was divested of his jurisdiction to make additions on the aforesaid two issues, viz. (i) sum of Rs. 2,74,50,810/- that was received by the assessee company as share capital/premium and (ii) unsecured loans of Rs. 1,88,56,508/- received by the assessee company from three persons. Accordingly, the Pr. CIT could not have assumed jurisdiction u/s. 263 of the Act, and held the order passed by the A.O u/s. 147 r.w.s. 143(3), dated 29.03.2022 as erroneous on the ground that the A.O while framing the reassessment had failed to verify the aforesaid issues which were not the subject matter of the reassessment order. At the same time, we may observe that as both the aforesaid issues, viz. (i) unsecured loans received by the assessee company : Rs. 1,88,56,508/-; and (ii) share capital/premium received by the assessee company : Rs. 2,74,50,810/- were the subject matter of the "original assessment", therefore, the Pr. CIT remained well within his jurisdiction to have revised the original assessment order on the aforesaid issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng contained in sub- section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court. Explanation.-In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded." 7. A bare perusal of the order passed by the Commissioner of Income Tax would clearly demonstrate that only that part of order of assessment which related to lease equalization fund was found to be prejudicial to the interest of the Revenue. The proceedings for reassessment have nothing to do with the said head of income. Doctrine of merger, therefore, would not apply in a case of this nature. 8. Furthermore, Explanation (c) appended to Sub-section (1) of Section 263 of the Act is clear and unambiguous as in terms thereof doctrine of merger applies only in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non- assessment" as well as "under assessment". Income is said to have "escaped assessment" within the meaning of this section when it has not been charged in the hands of an assessee in the relevant year of assessment. The expression "assess" refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of Section 147 because the assessment had not been made in the regular manner under the Act. The expression "reassess" refers to a situation where an assessment has already been made but the Income-tax Officer has, on the basis of information in his possession, reason to believe that there has been under assessment on account of the existence of any of the grounds contemplated by the provisions of Section 147(b) read with the Explanation (I) thereto." 9. We may at this juncture also notice the decision of this Court in Hind Wire Industries Ltd (supra) wherein the decision of this Court in V. Jaganmohan Rao v. CIT and CEPT [75 ITR 373] interpreting the provisions of Section 34 of the Act was reproduced which reads as under: "Section 34 in terms states that once the Income- tax officer decides to reope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad the judgment in Jaganmohan Rao's case, as if laying down that reassessment wipes out the original assessment and that reassessment is not only confined to "escaped assessment" or "under assessment" but to the entire assessment for the year and starts the assessment proceeding de novo giving the right to an assessee to reagitate matters which he had lost during the original assessment proceeding, which had acquired finality, is not only erroneous but also against the phraseology of Section 147 of the Act and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under section 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. This is sufficient to answer the question which has been referred." We, therefore, are clearly of the opinion that in a case of this nature, the doctrine of merger will have no application. 14. The Madras High Court in A.K. Thanga Pillai (supra), in our opinion, has rightly considered the matter albeit under Section 17 of the Wealth Tax Act, 1957 which is in pari materia with the provisions of the Act. Relying on Sun Engineering Works P. Ltd (supra), it was held: "Under section 17 of the Wealth-tax Act, 1957, even as it is under section 147 of the Income-tax Act, proceedings for reassessment can be initiated when what is assessable to tax has escaped assessment for any assessment year. The power to deal with underassessment and the scope of reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court, we are of the view that it is only in a case where the issues before the Commissioner at the time of exercising powers under Section 263 of the Act relate to the subject matter of re-assessment, the same would bring the order of reassessment within the realm of the jurisdiction of the Commissioner u/s. 263 of the Act. Also, the period of limitation for exercising jurisdiction u/s. 263 of the Act would start from the date of the re-assessment order. However, if the subject matter of the re-assessment is distinct and different, as in the present case before us, then in that case the relevant date for the purpose of determination of period of limitation for exercising powers under Section 263 of the Act would be the date of the original assessment order. 17. We, thus, in terms of our aforesaid observations, are of the view that the Pr. CIT had exceeded the jurisdiction vested with him u/s. 263 of the Act with respect to the aforesaid two issues, viz. (i) sum of Rs. 2,74,50,810/- received by the assessee company as share capital/premium AND (ii) sum of Rs. 1,88,56,508/- received by the assessee company as unsecured loans from three persons, as the same d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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