Income Tax Act – Section 263 –Appeal filed by the assessee is against the revision order of CIT (Exemptions) challenging the order passed by the CIT (Exemptions) u/s.263 of the Act for the A.Y under consideration was barred by limitation - HELD - the show-cause notice issued by the CIT (Exemptions) is beyond the period of two years from the end of the financial year in which the assessment was completed as per Section 263(2) of the Act. Hence, the re-assessment framed by the CIT (Exemptions) is barred by limitation – Accordingly, the major grounds raised by the assessee are allowed - The other grounds raised by the assessee are declared as infructuous and appeal of the assessee is allowed.

 

2021-VIL-103-ITAT-MUM

 

IN THE INCOME TAX APPELLATE TRIBUNAL,

 ‘C’ BENCH MUMBAI

 

ITA NO.3522/MUM/2018

(ASSESSMENT YEAR: 2008-09)

 

DATE OF HEARING: 21.12.2021

DATE OF PRONOUNCEMENT: 23.12.2021

 

INSTITUTE OF CHEMICAL TECHNOLOGY

 

Vs

 

DY. DIRECTOR OF INCOME TAX (EXEMPTION)-II(1)

 

ASSESSEE BY: SHRI YOGESH THAR

REVENUE BY: DR. PALLAVI DARADE & SHRI MEHUL JAIN

 

BEFORE

SHRI M.BALAGANESH, ACCOUNTANT MEMBER

SHRI AMARJIT SINGH, JUDICIAL MEMBER

 

ORDER

 

This appeal in ITA No.3522/Mum/2018 for A.Y.2008-09 preferred by the assessee against the revision order of the Commissioner of Income Tax (Exemptions) in appeal dated 21/03/2018 u/s.263 of the Act.

 

2. The ground No. 1 & 2 raised by the assessee are challenging the order passed by the ld. CIT(Exemptions) u/s.263 of the Act for the A.Y.2008-09 was barred by limitation.

 

3. We have heard rival submissions and perused the materials available on record. The assessee is a public charitable trust duly registered u/s.12A of the Act vide Registration No.39711 dated 28/06/2005. The assessee had accordingly claimed exemption u/s. 11 of the Act and filed its return of income for the A.Y.2008-09 on 25/03/2009 declaring total income of Rs. Nil. The assessee has filed the income and expenditure account, balance sheet and audit report in Form 10B along with the return of income. The scrutiny assessment was completed in the hands of the assessee trust u/s.143(3) of the Act on 13/12/2020 assessing total income at Rs. Nil. Later the assessment for the A.Y.2008- 09 was sought to be reopened by issuance of notice u/s.148 of the Act after due recording of reasons for reopening. In the said reasons, it was observed that assessee had claimed accumulation u/s.11(2) of the Act at Rs.80,00,000/- for which the assessee had not submitted Form No.10 and hence, the said accumulation should be disallowed. Further, it was also observed that assessee had claimed a sum of Rs. 2,34,22,327/- being amount transferred to development fund as an application of fund. In the opinion of the ld. AO, the said does not represent application of fund for charitable purposes and hence, to be disallowed. For these two reasons, the assessment for A.Y.2008-09 was reopened by the ld. AO. However, while framing the re-assessment u/s.143(3) r.w.s. 147 of the Act dated 22/02/2016, the addition of Rs.80,00,000/- towards accrued interest on RBI bond was made to correspondingly deduction u/s.11(1)(a) was also granted for the same as it falls under 15% category, being the amount eligible for accumulation. Similarly, while determining the total amount applied for charitable purposes, the amount transferred to development fund was excluded by the ld. AO and application of funds was determined accordingly. Ultimately, the assessed income resulted in ‘Nil’ even in the re-assessment proceedings.

 

3.1. This re-assessment was sought to be revised by the ld. CIT(Exemptions) by issue of show-case notice u/s.263 of the Act dated 28/02/2017. The assessee had shown consultancy fee which was considered as business income in A.Y.2013-14. Similar consultancy fee was also received by assessee amounting to Rs.75,65,833/- during the year under consideration which according to ld. CIT(Exemptions), should also be considered as business income. Since this was not done by the ld. AO in the re-assessment framed on 22/02/2016, in the opinion of the ld. CIT(Exemptions), the re-assessment order of the ld. AO is erroneous and prejudicial to the interest of the Revenue and hence section 263 proceedings were initiated.

 

3.2. We find that assessment was originally completed u/s.143(3) of the Act on 13/12/2010. Admittedly, the receipt of consultancy fees of Rs.75,65,833/- has been duly reflected in the income and expenditure filed by the assessee along with the original return of income filed on 25/03/2009. So, the Assessing Officer had two innings - once during the original scrutiny assessment proceedings and again during the re assessment proceedings to examine the aspect of receipt of consultancy fees. In the re-assessment proceedings whatever that was sought to be verified by the ld. AO had been duly verified in the final re-assessment order. Hence, there cannot be any error that could be attributed in the order of re-assessment of the ld. AO. No doubt Section 147 of the Act provides a mechanism for the ld. AO to look into some other matters that had come to his knowledge during the course of re-assessment proceedings which was not the subject matter of reasons recorded. In the instant case, the receipt of consultancy fee of Rs.75,65,833/- does not fall within the ambit of expression “income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of proceedings under this Section”, as the consultancy receipts was very much disclosed by the assessee in the income and expenditure account which was filed along with the original return of income itself. If at all there is any error in the assessment order framed by the ld. AO, it can only be in the original scrutiny assessment order u/s.143(3) of the Act dated 13/12/2010 and not in the re-assessment order framed u/s.143(3) r.w.s. 147 of the Act dated 22/02/2016. Hence, the show-cause notice issued by the ld. CIT(Exemptions) dated 28/02/2017 is squarely beyond the period of two years from the end of the financial year in which the 143(3) assessment was completed as per Section 263(2) of the Act. Hence, it could be safely concluded that the re-assessment framed by the ld. CIT(Exemptions) on 21/03/2018 is squarely barred by limitation. We find that the very same issue is no longer res integra 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). The relevant portion of the said order is reproduced hereunder:-

 

“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 such items which were the subject-matter of appeal and not which were not. The question came up for consideration before this Court in CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297. Therein the assessee raised a contention that once jurisdiction under section 147 of the Act is invoked, the whole assessment proceeding became reopened, which was negatived by the Court opining :

 

"Section 147, which is subject to section 148, divides cases of income escaping assessment into two clauses, viz., (a) those due to the non submission of the return of income or non-disclosure of true and full facts, and (b) other instances. Explanation (1) defines as to what constitutes escape of assessment. In order to invoke jurisdiction under section 147(a) of the Act, the ITO must have reason to believe that some income chargeable to tax of an assessee has escaped assessment by reason of the omission or failure on the part of the assessee either to make a return under section 139 for the relevant assessment year or to disclose fully and truly material facts necessary for the assessment for that year. Both the conditions must exist before an ITO can proceed to exercise jurisdiction under section 147(a) of the Act. Under section 147(b), the Income-tax Officer also has the jurisdiction to initiate proceedings for reassessment where he has reason to believe, on the basis of information in his possession, that income chargeable to tax has been either underassessed or has been assessed at too low a rate or has been made the subject of excessive relief under the Act or excessive loss or depreciation allowance has been computed. In either case, whether the Income-tax Officer invokes his jurisdiction under clause (a) or clause (b) or both, the proceedings for bringing to tax an 'escaped assessment' can only commence by issuance of a notice under section 148 of the Act within the time prescribed under the Act. Thus, under section 147, the Assessing Officer has been vested with the power to 'assess or reassess' the escaped income of an assessee. The use of the expression 'assess or reassess such income or recompute the loss or depreciation allowance' in section 147 after the conditions for reassessment are satisfied, is only relatable to the preceding expression in clauses (a) and (b), viz., 'escaped assessment'. The term 'escaped assessment' includes both 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 Explanation (I) thereto." (p. 309)

 

9. We may at this juncture also notice the decision of this Court in Hind Wire Industries Ltd.'s case (supra) wherein the decision of this Court in V. Jaganmohan Rao v. CIT/CEPT [1970] 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 reopen the assessment, he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22, the previous underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b), the Income-tax Officer had not only the jurisdiction, but it was his duty to levy tax on the entire income that had escaped assessment during that year'." (p. 643)

 

10. There may not be any doubt or dispute that once an order of assessment is reopened, the previous underassessment will be held to be set aside and the whole proceedings would start afresh but the same would not mean that even when the subject-matter of reassessment is distinct and different, the entire proceeding of assessment would be deemed to have been reopened.

 

11. In Sun Engg. Works (P.) Ltd.'s case (supra) also, V. Jaganmohan Rao's case (supra) was noticed stating:

 

"The principle laid down by this Court in Jaganmohan Rao's case, therefore, is only to the extent that once an assessment is validly reopened by issuance of a notice under section 22(2) of the 1922 Act (corresponding to section 148 of the Act) the previous under assessment is set aside and the ITO has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. . . The judgment in V. Jaganmohan Rao's case, therefore, cannot be read to imply as laying down that in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings, it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read 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 while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. . . ." (p. 319)

 

It was furthermore held:

 

"As a result of the aforesaid discussion, we find that in proceedings under section 147 of the Act, the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice under section 148 and where reassessment is made under section 147 in respect of income which has escaped tax, the Income-tax Officer's jurisdiction is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income-tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject-matter of proceedings under section 14. . . ." (p. 320)

 

12. We may at this juncture also take note of the fact that even the Tribunal found that all the subsequent events were in respect of the matters other than the allowance of 'lease equalization fund'. The said finding of fact is binding on us. Doctrine of merger, therefore, in the fact situation obtaining herein cannot be said to have any application whatsoever. It is not a case where the subject-matter of reassessment and subject-matter of assessment were the same. They were not.

 

13. It may be of some interest to notice that a similar contention raised at the instance of an assessee was rejected by a 3-Judge Bench of this Court in CIT v. Shri Arbuda Mills Ltd. [1998] 231 ITR 50. This Court took note of the amendment made in section 263 of the Act by the Finance Act, 1989 with retrospective effect from 1-6-1988, inserting Explanation (c) to sub-section (1) of section 263 of the Act stating:

 

"The consequence of the said amendment made with retrospective effect is that the powers 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." (p. 52)

 

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 section 17 of the Wealth-tax 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 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 proceedings as explained by the Supreme Court in the case of Sun Engg. [1992] 198 ITR 297 , is in relation to that which has escaped assessment, and does not extend to reopening the entire assessment for the purpose of redoing the same de novo. An assessee cannot agitate in any such reassessment proceedings matters forming part of the original assessment which are not required to be dealt with for the purpose of levying tax on that which had escaped tax earlier. Cases of underassessment are also treated as instances of escaped assessment.

 

The order of reassessment is one which deals with the assessment already made in respect of items which are not required to be reopened, as also matters which are required to be dealt with in order to bring what had escaped in the earlier order of assessment, to assessment. An assessee who has failed to file an appeal against the original order of assessment cannot utilise the reassessment proceedings as an occasion for seeking revision or review of what had been assessed earlier. He may only question the extent of the reassessment insofar as the escaped assessment is concerned.

 

The revenue is similarly bound. . . ." (p. 263).

 

The same principle was reiterated by a Division Bench of the Calcutta High Court in CIT v. Kanubhai Engineers (P.) Ltd. [2000] 241 ITR 665.

 

15. We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, having regard to the fact that the Commissioner of Income-tax exercising its revisional jurisdiction reopened the order of assessment only in relation to lease equalization fund which being not the subject of the reassessment proceedings, the period of limitation provided for under sub-section (2) of section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus, been invoked by the Commissioner of Income-tax beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity. (Emphasis supplied by us)

 

16. The Tribunal and the High Court, therefore, in our opinion, were correct in passing the impugned judgment. The appeal, therefore, being devoid of any merit is dismissed with costs. Counsel's fee assessed at Rs. 25,000.

 

3.3. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that the order passed by the ld. CIT(Exemptions) u/s.263 of the Act is barred by limitation. Accordingly, the grounds No.1 & 2 raised by the assessee are allowed.

 

3.4. Since the entire revision order passed by the ld. CIT(Exemptions) is hereby quashed as barred by limitation, we are not inclined to address the issue on merits. Accordingly, the other grounds raised by the assessee are declared as infructuous.

 

4. In the result, appeal of the assessee is allowed.

 

Order pronounced on 23/12/2021 by way of proper mentioning in the notice board.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that publisher is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.