2025 (6) TMI 1799 - HC - Income Tax

Revision u/s 263 - limitation period in suo motu revision - HELD THAT - It is evident that the respondents can re-open the assessment order within a period of two years from the end of the relevant financial year. In the present case the assessment order was passed on 20.06.2017 and the said two year period came to an end on 31.03.2020. Therefore on or before 31.03.2020 the second respondent should have passed the suo motu revision order. But in the present case admittedly the suo motu order was passed by invoking section 263 on 22.03.2021 clearly after the expiry of limitation of two years. Thereafter another assessment order was passed on 30.03.2022 by the third respondent. Therefore it is a clear case that the entire proceeding is a violation of Section 263(2). Hence the assessment orders passed by the respondents 2 3 stands quashed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The principal legal question considered by the Court is whether the proceeding initiated under Section 263 of the Income Tax Act, 1961, is barred by limitation. More specifically, the Court examined:

• Whether the revision order under Section 263(2) was validly passed within the prescribed limitation period of two years from the end of the relevant financial year.
• The legal effect of merging the original assessment order dated 20.06.2017 with the revised assessment order dated 10.12.2019 on the limitation period for invoking Section 263.
• Whether the subsequent assessment orders dated 22.03.2021 and 30.03.2022 passed by the respondents were legally sustainable.
• The procedural propriety in issuing show cause notices and providing opportunity of hearing to the petitioner during the revision proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation for invoking Section 263 of the Income Tax Act, 1961

Relevant legal framework and precedents: Section 263(2) of the Income Tax Act, 1961, provides that no order shall be made under subsection (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. This statutory limitation is mandatory and restricts the tax authorities from revising assessment orders beyond the stipulated period.

Court's interpretation and reasoning: The Court emphasized that the limitation period for revision under Section 263 commences from the end of the financial year in which the original assessment order was passed. Here, the original assessment order was dated 20.06.2017, placing the end of the relevant financial year at 31.03.2018. Consequently, the two-year limitation expired on 31.03.2020.

The Court rejected the respondents' contention that the revised assessment order dated 10.12.2019 merged the original order, thereby altering the limitation period. It held that the limitation for revision under Section 263 is triggered by the date of the original assessment order, not by any subsequent revision or merging of orders. The revised order does not reset or extend the limitation period.

Key evidence and findings: The petitioner's original assessment order was dated 20.06.2017, and the revised order was passed on 10.12.2019. The impugned revision order under Section 263 was passed on 22.03.2021, which is beyond the two-year limitation period ending 31.03.2020. The subsequent assessment order dated 30.03.2022 was also passed after the limitation period had expired.

Application of law to facts: Applying the statutory limitation, the Court found the revision order dated 22.03.2021 and the assessment order dated 30.03.2022 to be beyond the permissible time frame under Section 263(2). Therefore, these orders were held to be without jurisdiction and liable to be quashed.

Treatment of competing arguments: The respondents argued that the reopening was justified based on additional income admitted during a survey under Section 133A and that the revised assessment order merged the earlier order, implying a fresh limitation period. The Court dismissed these arguments, clarifying that the limitation for revision under Section 263 is strictly two years from the end of the financial year in which the original order was passed, regardless of any subsequent revisions or merged orders.

Conclusions: The Court concluded that the revision order under Section 263(2) passed on 22.03.2021 was barred by limitation and hence invalid. The subsequent assessment order dated 30.03.2022 was also illegal as it stemmed from the invalid revision.

Issue 2: Procedural fairness and opportunity of hearing in the revision proceedings

Relevant legal framework and precedents: Principles of natural justice require that a person affected by an order must be given a reasonable opportunity to be heard before adverse orders are passed. This includes the right to receive show cause notices and file objections.

Court's interpretation and reasoning: The petitioner contended that no opportunity of hearing was provided before passing the impugned orders dated 22.03.2021 and 30.03.2022. The respondents contended that the petitioner participated in the proceedings and filed submissions, but did not raise objections regarding the non-existence of the original order during the Section 263 proceedings.

Key evidence and findings: The respondents' counter affidavit admitted that the petitioner participated in the proceedings under Section 263 and made submissions on certain issues but did not raise the limitation or non-existence of the original order. The petitioner raised these objections only after receiving the notice under Section 142(1) dated 03.02.2022.

Application of law to facts: The Court noted that while the petitioner did participate in the proceedings, the central objection regarding limitation was not raised during the Section 263 proceedings. However, since the Court found the revision order barred by limitation on statutory grounds, the procedural irregularity became immaterial to the ultimate decision.

Treatment of competing arguments: The Court acknowledged the respondents' argument that the petitioner failed to raise the limitation objection timely but emphasized that limitation is a jurisdictional bar that can be raised at any stage.

Conclusions: Although the petitioner did not raise the limitation objection during the proceedings, the Court held that the limitation bar under Section 263(2) is a substantive jurisdictional issue that invalidates the impugned orders regardless of procedural participation.

3. SIGNIFICANT HOLDINGS

The Court held:

"No order shall be made under subsection 1 after the expiry of two years from the end of the financial year in which the order sought to be revised was passed." This statutory limitation is mandatory and cannot be circumvented by merging assessment orders or subsequent revisions.

The impugned revision order dated 22.03.2021 and the assessment order dated 30.03.2022, both passed beyond the prescribed limitation period under Section 263(2) of the Income Tax Act, 1961, are without jurisdiction and liable to be quashed.

The Court further established that the limitation period for revision under Section 263 commences from the end of the financial year in which the original assessment order was passed, not from any subsequent revised assessment order.

The Court emphasized that procedural participation by the assessee in the revision proceedings does not cure the jurisdictional defect arising from limitation.

Accordingly, the writ petition challenging the impugned orders was allowed, and the assessment orders dated 22.03.2021 and 30.03.2022 were quashed.