Revision

Period of limitation for exercise of jurisdiction under s 263, in respect of issues which did not form subject of reopening of assessment or order of reassessment, would commence from date of order of assessment and not from date on which order reopening reassessment had been passed, as held by MumTrib in Century Textiles & Industries Ltd v Dy CIT — In favour of: The assessee; ITA No 3449/Mum/2009: (AY 2001–2002).

Century Textiles & Industries Ltd v Dy. CIT

ITAT BENCH 'C' MUMBAI

ITA No. 3449/Mum/2009

Assessment Year: 2001-2002

R K Panda, AM and Vijay Pal Rao, JM

Decided on: 6 April 2011

Order

Per: R K Panda, AM:

This appeal filed by the assessee is directed against the order dated 30.3.2009 passed by the CITVI,

Mumbai under section 263 of the Act for the Assessment Year 2001-02.

2. Facts of the case, in brief, are that the original assessment in the case of the assessee for

Assessment Year 2001-02 was completed by the ACIT, Circle 6(2), Mumbai, u/s 143(3) of the I

T Act on 22.3.2004 determining the book profit u/s 115JB of the I T Act at Rs.55,45,06,947/-.

Thereafter, the case was reopened u/s 147 of the I T Act on the ground that book profit u/s 115JB

of the I T Act had been under assessed. Subsequently, order u/s 143(3)/147 was passed by the

ACIT, Circle 6(2) Mumbai on 29.11.2006. On going through the said order dated 29.11.2006, it

was noticed by the ld. CIT that while completing the reassessment, the Assessing Officer has

failed to make necessary disallowance in terms of clause (f) of Explanation (1) to section 115JB

of the Act in respect of dividend income claimed exempt u/s 10 of the I T Act, which resulted in

under assessment of book profit u/s 115JB of the I T Act. Therefore, the CIT was of the opinion

that the order passed by the Assessing Officer u/s 143(3)/147 on 29.11.2006 was erroneous in so

far as it is prejudicial to the interest of the revenue. Accordingly, proceedings u/s 263 were

initiated by the CIT.

 

2.1 In response to the notice issued u/s 263, it was submitted that while completing the

assessment u/s 143(3)/147 on 29.11.2006, the Assessing Officer had made two additions viz Rs.

6.87 crores in respect of arrears of depreciation and Rs. 1.35 crores in respect of revaluation

reserve for the purpose of computing book profit u/s 115JB of the Act. Both these additions were

subsequently knocked down by the CIT(A). It was submitted that in view of the CIT(A)’s order

and the Supreme Court’s decision in the case of CIT v Apollo Tyres Ltd reported in 255 ITR 273,

there was no case for disallowance in terms of clause (f) of Explanation (1) to section 115JB of

the Act in respect of dividend income claimed exempt u/s 10 of the I T Act for the purpose of

computation of book profit u/s 115JB of the I T Act. Accordingly, it was submitted that since

there was no error in the assessment order passed by the Assessing Officer; therefore, the CIT

was not justified in initiating proceedings u/s 263.

2.2 However, the CIT was not convinced with the various explanations given by the assessee. He

noted that the issues dealt in by the CIT(A) were altogether different. He was of the opinion that

the decision of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd (supra) has no

relevance to the issue raised in the notice u/s 263. It was observed by the CIT that the issue raised

in the notice u/s 263 relates to failure on the part of the Assessing Officer to make disallowance in

terms of clause (f) of Explanation (1) to section 115JB of the Act in respect of dividend income

claimed exempt u/s 10 of the I T Act. Since the Assessing Officer has failed to make necessary

addition to the book profit u/s 115JB in terms of clause (f) of Explanation (1) to sec. 115JB of the

I T Act, therefore, the assessment order passed by him u/s 143(3)/147 of the I T Act on

29.11.2006 was erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, he

set aside the assessment order and directed the Assessing Officer to pass fresh assessment order

computing book profit u/s 115JB of the Act after making necessary adjustment to the book profit

in terms of clause (f) of Explanation (1) to section 115JB of the Act and after giving reasonable

opportunity of being heard to the assessee.

3. Aggrieved with such order of the CIT, the assessee is in appeal here before us with the

following grounds;

“1. On the facts and circumstances of the case and in law, the ld CIT-VI, erred in invoking

provisions of sec 263 of the I T Act and directing revision of the assessment order dated

29.11.2006 passed u/s 143(3) r.w.s 147 of the act by the ACIT Cir 6(2), on the alleged ground

that the assessment order was erroneous and prejudicial to the interest of the revenue.

The appellant prays that order passed u/s 263 of the Act to be struck down as null and void-abinitio.

2. On the facts and circumstances of the case and in law, the CIT erred in invoking provisions of

section 263 of the Act and directing the revision of assessment order dated Nov 29, 2006 passed

u/s 143(3) r.w.s147 of the Act without appreciating the fact that the CIT(A)/VI has deleted all the

additions/deletions/adjustments made by the AO in the said order and thus, the order of the

CIT(A) got merged with assessment order passed by the Assessing Officer u/s 143(3) r.w.s 147.

The appellant prays that order passed u/s 263 of the Act to be struck down as null and void-abinitio.

3. On the facts and circumstances of the case and in law, the CIT erred in directing the Assessing

Officer to compute book profit u/s 115JB of the Act after making necessary adjustment to the

book profit in terms of clause (f) of Explanation (1) to sec.115JB of the act.

The appellant prays that it be held that on the facts and circumstances, invoking section 263 for

directing such disallowance is not in accordance with law and that no addition to the book profit

u/s 115JB in terms of clause (f) of explanation (1) to sec. 115JB of the act is called for”

The assessee has also taken additional ground which reads as under:

“The order dated 30.3.2009 passed by the CIT u/s 263 of the I T Act is beyond the limitation

period as the issue on which revision has been made by him is on an item which was not subject

matter of reassessment proceedings and therefore, period of limitation begins from original

assessment made on 22.3.2004.

4. The ld. counsel for the assessee, at the time of hearing, submitted that the above additional

ground relating to limitation period is filed in view of the decision of the Hon’ble Supreme Court

in the case of CIT vs Alagendran Finance Ltd reported in 293 ITR 1(SC). He submitted that the

additional ground relating to limitation goes to the root of the matter and the same does not

require any fresh investigation of the facts. Referring to various decisions, he submitted that the

additional ground should be accepted for adjudication.

4.1 The ld. counsel for the assessee, at the outset drew the attention of the Bench to the chart

giving the chronology of events which is as under:

S.No Dated Event

1 22.3.2004 Original order assed by the Assessing Officer u/s 143(3) of the I T Act

assessing total income u/s 115JB at Rs. 55,45,06,947/- (adjustment made for

provision for doubtful debts )

2 30.3.2005 Order passed by the CIT(A) in appeal filed against original order of

assessment (addition made for provision for doubtful debts while computing

book profits u/s 115JB upheld by CIT(A).

3 9.6.2005 Notice u/s 148 issued for reopening of assessment

4 9.6.2005 Reasons recorded for reopening stated that following two adjustments are

required to be made while computing book profit u/s 115JB:

i)Arrears of deprecation debited to P&L are required to b added to book profit;

ii)Revaluation reserve credited to P&L account should not be reduced while

computing book profits

5 29.11.2006 Asst order passed u/s 143(3) r.w.s 147 increasing book profits in respect of

aforesaid two adjustments.

6 31.3.2006 Expiry of limited u/s 263(2) if limited reckoned from Sl No.1 i.e. the original

assessment order.

7 17.1.2008 Order passed by CIT(A) giving relief to the assessee in respect of aforesaid

two adjustments made by the AO in his order passed u/s 143(3) r.w.s 147

8 25.3.2009 Notice u/s 263 issued by CIT stating that book profit computed by the AO u/s

155jB in his order passed on 29.11.2006 is erroneous and prejudicial to the

interest of revenue as no disallowance of expenditure in respect of exempt

income is made by the AO under clause (f) to explanation

9 30.3.2009 Order passed by CIT holding that order passed by the Assessing Officer on

29.11.2006 is erroneous and prejudicial to the interest of revenue as no

disallowance of expenditure in respect of exempt income is made by the AO

under clause (f) to explanation

10 31.3.2009 Expiry of limited u/s 263(2) if limited reckoned from Sl No.5 i.e. the

assessment order.

11 19..2009 Finance Act no.II got the assent from the President

4.2 Arguing the additional ground first the ld. counsel for the assessee referring to the decision of

the Hon’ble Supreme Court in the case of Alagendra Finance Ltd (supra) submitted that in a case

of reassessment of items other than item sought to be revised by the CIT, the period of limitation

commences from the date of original assessment order. Since in the instant case the reassessment

was made on 29.11.2006 on the issues of arrears of deprecation debited to the P&L account and

revaluation of reserve credited to the P&L account for the purpose of calculation of profit u/s

115JB and since the order sought to be revised u/s 263 relates to addition of dividend income

claimed exempt u/s 10 for the purpose of computation of book profit u/s 115JB, therefore, the

order sought to be revised is the order passed u/s 143(3) on 22.3.2004. Therefore, the order

passed u/s 263 on 30.3.2009 is barred by limitation.

4.3 In his alternate contention, he submitted that the original assessment order and the

reassessment order are merged with the order of the CIT(A) dated 17.1.2008 and 13.3.2005 and

therefore, the order passed u/s 263 for seeking to revise the reassessment order dated 29.11.2006

is void and bad in law.

4.4 The ld. counsel for the assessee, referring to pages 1 to 19 of the paper book, drew the

attention of the Bench to clause 32 at page 41 of the assessment order where the Assessing

Officer had discussed the claim of interest u/s 36(1)(ii) of the Act attributable to investment made

by the assessee company.

4.5 Referring to page 43 of the assessment order, he invited the attention of the Bench to the

query raised by the Assessing Officer as to why part of the claim as aforesaid should not be

disallowed on the ground that the relevant borrowings are attributable to the investments made in

shares and on the ground that dividend on shares is an exempt income and that the expenditure in

relation to such exempt income is not allowable as a deduction under the provisions of sec. 14A

w.e.f.1.4.1962.

4.6 Referring to page 48 of the assessment order, he further invited the attention of the Bench

regarding the findings of the Assessing Officer where he has mentioned the applicability of sec.

14A to the facts of the case.

4.7 Referring to page 52 of the assessment order, he drew the attention of the Bench that the

Assessing Officer has discussed the computation u/s 115JB.

4.8 Referring to pages 59 to 61 of the assessment order, the ld. counsel for the assessee, drew the

attention of the Bench to the final computation made by the Assessing Officer determining the

book profit u/s 115JB. Referring to the said computation, he submitted that the Assessing Officer

has made addition on account of amount referred to clause (f) of Explanation (1) to sub sec (2) of

section 115JB.

4.9 Referring to the copy of the order of the CIT(A) against the order passed by the Assessing

Officer, he drew the attention of the Bench to para 17.6 at page 23 of the order and submitted that

the issue relating to disallowance of interest u/s 36(1)(ii) was decided by the CIT(A) wherein he

has given part relief to the assessee.

4.10 Referring to page 91 of the paper book, the ld. counsel for the assessee drew the attention of

the Bench to the notice dated 9.6.2005 issued u/s 148. Referring to the reasons for reopening of

the assessment at page 92, he submitted that the reasons for reopening of the assessment u/s 147

of the Act was on account of computation of book profit u/s 115JB due to reduction of arrears of

depreciation amounting to Rs. 6,86,82,986/- and revaluation reserves of Rs.1,35,09,886/-.

4.11 Referring to the order passed u/s 143(3)/147, a copy of which is placed at pages 93 to 100 of

the paper book, he submitted that the Assessing Officer has calculated the revised book profit at

Rs. 63,66,99,819/- as against Rs. 55,45,06,447/- determined by him in the order dated 22.3.2004.

4.12 Referring to the decision of the Hon’ble Bombay High Court in the case of Ashok Buildcon

Ltd vACIT & another reported in 325 ITR 574 (Bom) and the decision of the Hon’ble Supreme

Court in the case of CIT v Alagendran Finance Ltd reported in 293 ITR 1(SC), he submitted that

in the case of revision of the assessment of items other than the items sought by the CIT, the

period of limitation begins from the original assessment and not from reassessment in which the

items was not dealt with. The doctrine of merger does not apply to such order.

5 In his other alternate contention, he submitted that both the original order and the reassessment

order are beyond the reach of the CIT since both the orders were merged with the order of the

CIT(A) dated 30.3.2005 and 17,.1.2008. For this proposition, he relied on the following

decisions:

i) Marico Industries Ltd vs ACIT 115 TTJ 497 (Mum)

ii) Smt Sujata Grover vs DCIT 74 TTJ 347 (Del)

iii) Sonal Garments vs JCIT 95 ITD 363 (Mum)

5.1 He submitted that the order passed by the ld. CIT u/s 263 is based on presumption and

assumption that there is expenditure relatable to exempt income. The CIT, without arriving at the

conclusion that there was in fact expenditure relatable to exempt income could not have directed

the Assessing Officer to make addition in terms of clause (f) of Explanation (1) to sec. 115JB of

the Act. For this proposition, he relied on the decision of the Delhi Bench of the Tribunal (Third

Member) in the case of Wimco Seedlings Ltd v DCIT reported in 107 ITD 267 at page 268.

(Delhi) (TM).

5.2 Referring to the decisions, reported in 104 ITR 490; 192 ITR 547; 207 ITR 108 & 236 ITR

156 he submitted that the Tribunal cannot support the order of the CIT on any other ground

5.3 Referring to the decisions of the Hon’ble Supreme Court in the case of Malabar Industrial

Company v CIT reported in 243 ITR 83 (SC) and CIT v Max India reported in 295 ITR 288, he

submitted that when the Assessing Officer adopts one of the two courses permissible in law and it

has resulted in loss of revenue, or where two views are possible and the Assessing Officer has

taken one view, with which the CIT does not agree, it cannot be treated as an erroneous order

prejudicial to the interest of the revenue, unless the view taken by the AO is unsustainable in law.

He accordingly submitted that the order of the CIT passed u/s 263 should be quashed.

5.4 The ld. DR, on the other hand, submitted that jurisdictional issue was never before the CIT.

While supporting the order of the CIT, the ld. DR submitted that the CIT has not at all passed the

order based on presumption and surmises and in fact he has quantified the amount of

disallowance u/s 14A attributable to such exempted dividend income. He submitted that the

decision of the jurisdictional High Court in the case of Godrej & Boyce Mfg P Ltd v ACIT

reported in 328 ITR 81 is binding on the assessee as well as the revenue and the decision of the

Third Member in the case of Wimco Seedlings Ltd (supra) is not applicable.

6. The ld. counsel for the assessee, in his rejoinder submitted that the assessee can always raise a

legal issue at any point of time in the shape of additional grounds in view of the decision of the

Hon’ble Supreme Court in the case of NTPC reported in 229 ITR 383. He also relied on the

decision of the Hon’ble Supreme Court in the case of Jute Corporation of India reported in 263

ITR 245.

6.1 After hearing both the sides and in view of the decision of the Hon’ble Supreme Court in the

case of NTPC Ltd reported in 229 ITR 383 and in the case of Jute Corporation of India Ltd

reported in 187 ITR 688, the additional ground raised by the assessee is admitted for adjudication.

7. We have considered the rival submissions made by both the parties, perused the orders of the

authorities below and the paper book filed on behalf of the assessee. We have also considered the

various decisions cited before us. There is no dispute to the fact that the assessee, in the instant

case has filed the return of income on 30.10.2001 declaring total income of Rs. 47,71,76,553/- u/s

115JB of the Act since as per the computation of income under other provisions of Income Tax

Act, there was a gross loss of Rs.12,83,58,029/-.There is also no dispute to the fact that the

Assessing Officer completed the assessment u/s 143(3) on 22.3.2004 determining the total

income u/s 115JB at Rs. 55,45,06,947/- after making adjustments for provisions of doubtful

debts. There is also no dispute to the fact that the CIT(A) vide order dated 30.3.2009 has upheld

the addition made on account of provisions for doubtful debts for the purpose of computation of

the book profit u/s 115JB . There is also no dispute to the fact that the Assessing Officer issued

notice u/s 148 on 9.6.2005 for reopening of the assessment on the ground that the following two

adjustments are required to be made while computing the book profit u/s 115JB:

i)Arrears of deprecation debited to P&L are required to be added to book profit;

ii) Revaluation reserve credited to P&L account should not be reduced while computing book

profits

7.1 We find the assessment order was passed u/s 143(3)/147 increasing the book profits in respect

of the aforesaid two adjustments on 29.11.2006. We find the CIT(A) vide order dated 17.1.2008

gave relief to the assessee in respect of the aforesaid two adjustments made by the Assessing

Officer u/ 143(3)/147. Now, The CIT issued notice u/s 263 on the ground that the book profit

computed by the Assessing Officer u/s 115JB in his order dt 29.11.2006 is erroneous and

prejudicial to the interest of revenue as no disallowance of expenditure in respect of exempt

income has been made by the Assessing Officer under clause (f) of Explanation (1) to sec. 15JB.

Accordingly in the order passed u/s 263 on 30.3.2009, the CIT held that the order passed by the

Assessing Officer on 29.11.2006 is erroneous in so far as it is prejudicial to the interest of

revenue as no disallowance of expenditure in respect of exempt income is made by the Assessing

Officer under clause (f) of Explanting (1) to sec. 115JB of the Act. In our opinion, the issue

stands covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case

of Alegendran Finance Ltd (supra) and the decision of the jurisdictional High Court in the case of

Ashok Buildcon Ltd (supra).

7.2 We find. In the case Alagendran Finance Ltd (supra) the assessment for the AYs 1994-95,

1995-96 and 1996-97 were completed in 1997 and 1998. In the orders of assessment, the

assessee’s claim relating to “lease equalisation fund” was accepted. Thereafter, orders of

reassessment were initiated in respect of three other items but not the item relating to “lease

equalisation fund” and reassessment were made. Thereafter, the Commissioner by an order dated

29.3.2004, initiated revision proceedings only in relation to the item ‘lease equalisation fund’.

The Tribunal held that the revision proceedings were barred by limitation as they were initiated

more than four years after the original assessment, which was upheld by the Hon’ble High Court.

On further appeal, the Hon’ble Supreme Court has held as under: (short note)

“Affirming the decision of the High Court, that the Commissioner had sought to revise only that

part of the order of assessment which related to Lease Equalisation Fund; but the proceedings

for reassessment had nothing to do with that item of income. The doctrine of merger did not apply

in a case of this nature; the period of limitation commenced from the dates of the original

assessments and not from the reassessments since the latter had not had anything to do with the

lease equalisation fund. This was not a case where the subject-matter of reassessment and the

subject matter of the assessment were the same.

{CIT vs Shri Arbuda Mills Ltd 231 ITR 50 (SC) relied on CWT vs A KThanga Pillai 252 ITR 260

(Mad) approved.}

There may not be any doubt or dispute that once an order of assessment is reopened, the previous

under assessment will be held to be set aside and the whole proceedings would start afresh, but

that would not mean that even when the subject matter or reassessment is distinct and different,

the entire proceedings would be deemed to have been reopened.

Explanation (c) appended to sub-sect (1) of sec 263 of the I T Act, 1961 which deals with the

power of the Commissioner in revision, is clear and unambiguous, as in terms thereof the

doctrine of merger applies only in respect of such items which were the subject matter of appeal

and not in respect of those were not.

Decision of the Madras High Court affirmed.”

7.3 We find, the Hon’ble jurisdictional High Court in the case of Ashok Buildcon Ltd (supra)

following the decision of the Hon’ble Supreme Court in the case of Alagendran Finance Ltd

(supra) held that where an assessment has been reopened u/s 147 of the I T Act, 1961 in relation

to a particular ground or in relation to certain specified grounds and, subsequent to the passing of

the order of reassessment, jurisdiction u/s 263 is sought to be exercised with reference to issues

which did not form the subject of the reopening of the assessment or the order of reassessment,

the period of limitation provided for in sub-sec. (2) of sec. 263 would commence from the date of

the order of assessment and not from the date on which the order reopening the reassessment had

been passed. In respect of issues which did not form the subject matter of the reassessment

proceedings u/s 143(3) r.w.s 147 limitation would commence with reference to the original order

of assessment.

7.4 Since in the instant case, the original order was passed on 22.3.2004 u/s 143(3) of the I T Act

and since the reassessment notice was issued for the purpose of adding the arrears of depreciation

debited to P&L account and the revaluation reserves credited to P&L account to be reduced while

computing book profit and since the order of the CIT relates to non disallowance of expenditure

in respect of exempt income under clause (f) to Explanation(1) of sec 115JB; therefore, in view of

the decisions cited above, the period of limitation provided for in 263(2) would commence from

the date of original assessment which, in the instant case is 22.3.2004. Since the order of the CIT

u/s 263 is dated 30.3.2009, therefore, the same is barred by limitation. Since the asses see

succeeds on the additional ground the other grounds being academic in nature are not being

adjudicated.

8 In the result, the appeal filed by the assessee is allowed.