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TMI Blog2019 (3) TMI 2079X X X X Extracts X X X X X X X X Extracts X X X X ..... ubjected reassessment order passed under s. 143(3)/147, dt. 30th March, 2016, was without making proper enquiries w.r.t. the share capital of Rs. 82 lakhs and share premium of Rs. 4.10 crores (totalling to Rs. 4.92 crores) and the assumption of jurisdiction, both are contrary to the provisions of law and facts on record. Hence, the proceedings initiated under s. 263 of the Act and the impugned order dt. 30th March, 2016 deserve to be quashed. 4. The learned Principal CIT, Ajmer, erred in law as well as on the facts of the case in wrongly setting aside the assessment order dt. 30th March, 2016 despite there being specific findings given by the AO after full application of mind on the issues before him and this was nothing but a case of change of opinion, based on which, assumption of jurisdiction under s. 263 is not permissible. The impugned order dt. 5th March, 2018 therefore, lacks valid jurisdiction under s. 263 of the Act and hence, the same kindly be quashed. 5. The appellant prays Your Honour's indulgence to add, amend or alter all or any of the grounds of the appeal on or before the date of hearing." 2. At the outset, it is pertinent to mention that the present appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Jan., 2019 treating the appeal filed by the assessee as infructuous. Thus, the learned Authorized Representative has submitted that the AO has already completed three rounds of assessment and reassessments and after the second reassessment order passed on 30th March, 2016, the learned Principal CIT has invoked the provisions of s. 263 of the Act on the ground that the AO has not carried out proper enquiry in respect of the share capital and share premium received by the assessee from the remaining 22 shareholders. He has referred to the provisions of s. 263 and submitted that the limitation for invoking the provisions of s. 263 has been provided in sub-s. (2) whereas the learned Principal CIT has passed the impugned order under s. 263 after the expiry of about 7 years from the end of the financial year in which the original assessment order under s. 143(3) was passed. The learned counsel has submitted that the AO has reopened the assessment by recording the reasons whereby AO proposed to make the addition in respect of 6 share applicants and, therefore, the issue of genuineness and creditworthiness of the remaining 22 share applicants was neither a subject-matter of reasons reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Delhi High Court on the point of limitation provided under s. 263(2) of the IT Act. He has also referred to the decision of Hon'ble Bombay High Court in case of Ashoka Buildcon Ltd. vs. Asstt. CIT & Anr. (2010) 39 DTR (Bom) 113 : (2011) 239 CTR (Bom) 318 : (2010) 325 ITR 574 (Bom) as well as the decision in case of CIT vs. ICICI Bank Ltd. (2012) 252 CTR (Bom) 85 : (2012) 70 DTR (Bom) 419 : (2012) 343 ITR 74 (Bom) and submitted that the Hon'ble High Court has taken a consistent view that where the jurisdiction under s. 263 is sought to be exercised with reference to an issue which is covered by the original assessment order under s. 143(3) and which does not form subject-matter of reassessment, the period of limitation provided under s. 263(2) must begin to run from the order passed under s. 143(3). The learned Authorized Representative has pointed out that all these decisions have been rendered by following the decision of Hon'ble Supreme Court in case of CIT vs. Alagendran Finance Ltd. (2007) 211 CTR (SC) 69 : (2007) 293 ITR 1 (SC). Hence, the learned Authorized Representative has submitted that the proceedings under s. 263 are without jurisdiction as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15th Dec, 2010 wherein the AO has examined some of the parties while making the addition under s. 68 of the Act on account of unexplained cash credit. Subsequently, the AO reopened the assessment by issuing a notice under s. 148 on 24th March, 2011 by recording the reasons as under: "1. The assessee company has filed his return of income on 30th Sept., 2008 declaring income/loss of Rs. 1,32,66,597 which was processed under s. 143(1) of IT Act, 1961. In this case scrutiny assessment under s. 143(3) of IT Act, 1961 was completed at total income NIL income on 15th Dec, 2010 by the Dy. CIT, Circle, Bhilwara. In the said assessment order tax under s. 115JB (MAT) was charged at Rs. 14,63,738 on declared book profit of Rs. 1,29,19,131. 2. From the information available in this office, it is observed that the assessee has obtained entries in the form of share application money amounting to Rs. 2,25,00,000 from the following parties/companies during financial year 2007-08: M/s Talent Infoway Ltd. Rs. 42,00,000 M/s Mahasagar Securities Rs. 27,00,000 M/s Mihir Agencies (P) Ltd. Rs. 66,00,000 M/s Alpha Chemic Trade Agencies (P) Ltd. Rs. 60,00,000 M/s Buniyad Chemicals Ltd. Rs. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings based on the information received from the Dy. Director of IT (Investigation Wing) Mumbai, in respect of a search and seizure action undertaken in case of Mahasagar Securities Ltd. belonging to Mr. Mukesh Choksi and Mr. Jayesh K. Sampat. Therefore, the AO proposed to make the addition in respect of the share capital and share premium received from six parties belonging to the group concerns of Shri Mukesh Choksi and Shri Jayesh K. Sampat. The reassessment under s. 143(3) r/w. s. 147 was completed on 26th Dec, 2011 whereby the AO made an addition of Rs. 2.25 crores as undisclosed investment. Thereafter, the AO again proposed to reopen the assessment by issuing notice under s. 148 on 15th Oct., 2014 by recording the reasons as under: "In this case, the assessee filed its return of income electronically for the year under consideration on 30th Sept., 2008 declaring total taxable income of Rs. Nil which was assessed under s. 143(1) at income of Rs. Nil. Order under s. 143(3) passed on 15th Dec, 2010 and assessed income of Rs. Nil. Again, order under s. 147/143(3) passed on 26th Dec, 2011 and assessed income of Rs. 1,36,41,140. On the basis of information in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Explanation-3 -- For the purpose of assessment or reassessment under this section, the AO may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue 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-s. (2) of s. 148." Therefore, the subject-matter of reassessment and jurisdiction of the AO is only limited to the extent of issue on which the assessment was reopened as recorded in the reasons for reopening and it may be extended if during the reassessment proceedings the AO come to know that some other income has escaped assessment not part of the issue in the reasons recorded by the AO. Therefore, if during the reassessment proceedings such issue come to the notice of the AO that an income other than the income specified in the reasons recorded has escaped assessment, the AO can assess or reassess the same notwithstanding the said issue was not part of the reasons recorded under s. 148(2) of the IT Act. The first reassessment proceedings were initiated by the AO in respect of the specific six sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt (P) Ltd. - 48.00.000 48.00.000 20. Miller Chemical (P) Ltd. - 48,00,000 48.00.000 21. Garrson Pharma Ltd. - 48,00,000 48,00,000 22. Mahachand Jain - 15.00.000 15.00.000 Grand Total 4.92.00.000 4.92,00,000 3. It has further been noticed from the records that the assessment order has been passed by the AO without making inquiries or verification which should have been made as to the source of credit of share capital & share premium of Rs. 4.92 crores. Therefore, the source, identity & creditworthiness of the investors and genuineness of transactions in respect of share capital and share premium of Rs. 4.92 crores have not been proved. Thus, the order passed by the AO on 30th March, 2016 is erroneous insofar as it is prejudicial to the interests of the Revenue. 4. Hence, a show cause notice under s. 263 of the IT Act is hereby given to you to afford an opportunity of being heard before taking such action. You may, therefore, appear in person or through your Authorized Representative at 11.30 AM on 18th Dec, 2017 and may file written submission, if any." Therefore, at the time of invoking the jurisdiction under s. 263 and issuing the show ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of learned Principal CIT in para 7.2 and para 8 are as under: "7.2 The case law relied upon by the assessee in support of its contention are not similar to the facts of the instant case. In these cases, proceedings under s. 263 were initiated on that issues which were not adjudicated upon in the assessment orders which were held to be erroneous insofar as prejudicial to the interest of the Revenue whereas in the instant case, issue for initiating the proceedings under s. 263 is similar i.e., bogus share money, which was subject-matter of adjudication by the AO in the impugned order dt. 30th March, 2016. 8. In view of the above facts and circumstances of the case, the assessment order dt. 30th March, 2016 passed under s. 143(3) r/w. s. 147 is considered erroneous insofar as it is prejudicial to the interest of Revenue with reference to the issues mentioned in show-cause notice and therefore it would be appropriate to direct a fresh assessment on those issues by the AO who shall provide any opportunity of being heard to the assessee before passing the order." Thus, even while passing the impugned order, the learned Principal CIT has held that the AO has not adjudicated the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the matter of Ashoka Buildcon Ltd.'s case (supra) the jurisdiction under s. 263 of the Act cannot be exercised on issues which were not subject-matter of consideration while passing the order of reassessment under s. 143(3)/147 of the Act but apart of an assessment done earlier under the Act. 13. In the above view, we find no fault with the order of the Tribunal in allowing the respondent's appeal. The submission of Mr. Chandrapal, learned counsel for the Revenue, is that in the case of bogus bills and non-genuine purchases, i.e., where the State is being defrauded the limitation as provided under s. 263 of the Act be ignored cannot be accepted. This is for the reason that neither the Tribunal nor we, in our appellate jurisdiction, can ignore the mandate of limitation provided under the Act. This is an issue which would fall within the domain of Parliament so as to make suitable amendment to the law after considering the various competing interests. So far as the submission of Mr. Chandrapal, learned counsel for the Revenue, with regard to the decision of the Supreme Court in Alagendran Finance Ltd.'s case (supra) and of this Court Ashoka Buildcon Ltd.'s case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment was passed by which the claim under s. 72A came to be disallowed. The submission that has been urged on behalf of the assessee is that, since the assessment was opened and an order of reassessment was passed only one issue, namely, the claim under s. 72A, when the CIT as a Revisional Authority under s. 263 seeks to exercise his jurisdiction on matters which did not form the subject of the order of reassessment, the period of limitation would begin to run from the original order of assessment. This submission which has been urged on behalf of the assessee would have to be accepted in view of the judgment of the Supreme Court in Alagendran Finance Ltd.'s case (supra). The issue which arose before the Supreme Court was whether, for the purpose of computing the period of limitation envisaged under sub-s. (1) of s. 263, the date of the order of assessment or of the order of reassessment is to be taken into consideration. In that case, the assessee filed its return for asst. yrs. 1994-95, 1995-96 and 1996-97 and the assessments were completed on 27th Feb., 1997, 12th May, 1997 and 30th March, 1998. In the orders of assessments, the return of the assessee under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticular ground or in relation to certain specified grounds and, subsequent to the passing of the order of reassessment, the jurisdiction under s. 263 is sought to be exercised with reference to issues which do not form the subject of the reopening of the assessment or the order of reassessment, the period of limitation provided for in sub-s. (2) of s. 263 would commence from the date of the order of assessment and not from the date on which the order reopening the reassessment has been passed. 9. Sec. 147 empowers the AO, if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year to assess or reassess the said 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 the section. Expln. 3 which has been inserted by the Finance (No. 2) Act of 2009 with retrospective effect from 1st April, 1989 provides that for the purpose of assessment or reassessment under the section, the AO may assess or reassess the income in respect of any issue which has escaped assessment and such issue comes to his notice subsequently, in the course of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f reassessment. Where a reassessment has been made pursuant to a notice under s. 148, the order of reassessment prevails in respect of those items which form part of reassessment. On items which do not form part of the reassessment, the original assessment continues to hold the field. When the AO reopens an assessment on a particular issue, it is open to him to make a reassessment on that issue as well as in respect of other issues which subsequently comes to his notice during the course of the proceedings under s. 147. The submission of the Revenue is that by not passing an order of reassessment in respect of other independent issues, the order of the AO can be construed to be erroneous and to be prejudicial to the interest of the Revenue within the meaning of s. 263. The submission cannot be accepted in the facts of the present case. The substantive part of s. 147 as well as Expln. 3 enables the AO to assess or reassess income chargeable to tax which he has reason to believe had escaped assessment and other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. There is nothing on the record of the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of the revisional jurisdiction under s. 263 is barred by limitation. We clarify that this would not preclude the Revenue from taking recourse to any other remedy that may be available in law." Therefore, if the exercise of revision jurisdiction under s. 263 in respect of issues which formed subject-matter of reassessment after the original assessment was reopened, the commencement of the limitation would be with reference to the order of reassessment, but if the CIT has exercised the jurisdiction under s. 263 on an issue which was not subject-matter of reassessment, then the limitation would reckon from the original assessment order passed under s. 143(3) and not from the reassessment order. In the case of CIT vs. ICICI Bank Ltd. (supra), the Hon'ble Bombay High Court has again reiterated its view in paras 5 to 7 as under: "5. The issue as to when the period of limitation would commence for an order under s. 263 was considered by the Supreme Court in CIT vs. Alagendran Finance Ltd. (2007) 211 CTR (SC) 69 : (2007) 293 ITR 1 (SC). In that case, orders of assessment for asst. yrs. 1994-95, 1995-96 and 1996-97 were passed on 27th Feb., 1997, 12th May, 1997 and 30th Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. vs. Asstt. CIT & Anr. (2010) 39 DTR (Bom) 113 : (2011) 239 CTR (Bom) 318 : (2010) 325 ITR 574 (Bom). The Division Bench considered a similar submission based on Expln. 3 which was inserted in s. 147 by the Finance Act of 2009 with retrospective effect from 1st April, 1989. Negativing the submission, the Division Bench held as follows: '..........Where a reassessment has been made pursuant to a notice under s. 148, the order of reassessment prevails in respect of those items which form part of reassessment. On items which do not form part of the reassessment, the original assessment continues to hold the field. When the AO reopens an assessment on a particular issue, it is open to him to make a reassessment on that issue as well as in respect of other issues which subsequently come to his notice during the course of the proceedings under s. 147. The submission of the Revenue is that by not passing an order of reassessment in respect of other independent issues, the order of the AO can be construed to be erroneous and to be prejudicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the field. Once that is the position, then clearly the doctrine of merger would not apply. The order under s. 143(3) passed on 10th 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, Expln. 3 to s. 147 will not alter that position. Expln. 3 only enables the AO, once an assessment is reopened, to assess or reassess the income in respect of any issue, even an issue in respect of which no reasons were indicated in the notice under s. 148(2). This, however, will not obviate the bar of limitation under s. 263(2). Where the jurisdiction under s. 263(1) is sought to be exercised with reference to an issue which is covered by the original order of assessment under s. 143(3) and which does not form the subject-matter of the reassessment, as in the present case, limitation must necessarily begin to run from the order under s. 143(3). Before concluding we may also take notice of the fact that the second order of reassessment dt. 26th March, 2002 has been set aside by the Tribunal on 27th Aug., 2010. An appeal against the order of the Tribunal is pending before this Court for admiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 re-agitate matters which he had lost during the original assessment proceeding, which had acquired finality, is not only erroneous but also against the phraseology of s. 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 while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee items, the powers of the CIT under s. 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's case (supra), in our opinion, has rightly considered the matter albeit under s. 17 of the WT. Act, 1957 which is in pari materia with the provisions of the Act. Relying on Sun Engg. Works (P) Ltd.'s case (supra), it was held: 'Under s. 17 of the WT Act, 1957, even as it is under s. 147 of the IT 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 under-assessment and the scope of reassessment proceedings as explained by the Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. (supra), is in relation to that which has escaped assessment, and does not extend to reopening the entire assessment for the purpose of redoing t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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