2025 (7) TMI 453 - HC - Income Tax

Revision u/s 263 - Period of limitation - reckoning two-year limitation period - Revenue submitted that the order passed by the appellant is within the statutory period of two years as the said period has to be reckoned from the date of the reassessment order passed u/s 143(3) r/w Section 147 i.e. 30.12.2009 and not from the date of the original assessment order i.e. 31.08.2006. HELD THAT - It is not disputed that the original assessment order was passed on 31.08.2006. The original assessment order had considered the issue under Section 43B of the Act. The said assessment order was reopened by the AO only with regard to the computation of long and short term capital gains pertaining to assessee s sale deed executed qua the land and building. The reassessment was not with regard to the deductions claimed u/s 43B. Therefore the order passed under Section 143(3) on 31.08.2006 cannot be said to have been merged with the order of reassessment in respect of the deductions under Section 43B of the Act. The order passed under 263(1) of the Act is with reference to an issue which is covered by the original assessment order and not with regard to the issue in the reassessment. Hence in our considered view the limitation of two years prescribed u/s 263(2) of the Act has to be reckoned from the date of the original assessment order u/s 143(3) of the Act which is 31.08.2006. See CIT vs. ICICI Bank 2012 (2) TMI 308 - BOMBAY HIGH COURT Thus the order of the appellant/Revenue u/s 263 is time barred and therefore was rightly set aside by the Tribunal.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Court considered the following core legal questions:

(a) Whether the Income Tax Appellate Tribunal was correct in holding that the order passed by the Commissioner of Income Tax under Section 263 of the Income Tax Act was time barred and not in accordance with the provisions of the Act;

(b) Whether the two-year limitation period prescribed under Section 263(2) of the Income Tax Act is to be reckoned from the date of the original assessment order or from the date of the reassessment order;

(c) Whether the Tribunal was correct in narrowing the scope of Section 263 and the powers of the Commissioner under that Section when the assessment was found to be erroneous and prejudicial to the interests of the Revenue.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Time-bar and Limitation Period under Section 263(2) of the Income Tax Act

Relevant legal framework and precedents: Section 263(1) empowers the Commissioner of Income Tax to revise an assessment order if it is erroneous and prejudicial to the interests of the Revenue. Section 263(2) prescribes a limitation period of two years from the end of the financial year in which the order sought to be revised was passed. The Bombay High Court in CIT vs. ICICI Bank [(2012) 343 ITR 74] held that if the issue under revision was covered by the original assessment order and not by the reassessment order, the limitation period must be reckoned from the date of the original assessment order and not from the reassessment order.

Court's interpretation and reasoning: The Court observed that the original assessment order dated 31.08.2006 dealt with the issue of deduction under Section 43B of the Act, which was the subject matter of the revision under Section 263. The reassessment order dated 30.12.2009 related solely to the computation of capital gains on the sale of land and building and did not address the Section 43B deduction. Therefore, the original assessment order and the reassessment order dealt with distinct issues.

The Court reasoned that the order under Section 263 was invoked with respect to an issue covered by the original assessment order and not by the reassessment. Hence, the limitation period for passing the revision order under Section 263 must be calculated from the date of the original assessment order, i.e., 31.08.2006.

Key evidence and findings: The original assessment order considered the Section 43B deduction. The reassessment order was limited to capital gains computation and did not revisit the Section 43B issue. The revision order under Section 263 was passed on 30.03.2012, which was beyond two years from the original assessment order date.

Application of law to facts: Since the revision order was passed more than two years after the original assessment order, it was time barred under Section 263(2). The doctrine of merger did not apply because the reassessment order did not subsume or replace the original order with respect to the Section 43B deduction issue.

Treatment of competing arguments: The Revenue argued that the limitation period should start from the date of reassessment order, contending that the reassessment order replaced the original order. The Assessee contended that since the Section 43B deduction was not part of the reassessment, the limitation period must be reckoned from the original assessment order. The Court accepted the Assessee's argument, relying on the precedent from the Bombay High Court, and rejected the Revenue's contention.

Conclusions: The Court held that the order under Section 263 was time barred as it was passed beyond the two-year period from the original assessment order date. The Tribunal was correct in setting aside the revision order on this ground.

Issue 3: Scope of Section 263 and Powers of the Commissioner

Relevant legal framework and precedents: Section 263 confers powers upon the Commissioner to revise an assessment order if it is erroneous and prejudicial to the interests of the Revenue. However, this power is subject to the limitation period prescribed under Section 263(2).

Court's interpretation and reasoning: The Court noted that while the Commissioner's power under Section 263 is wide, it is circumscribed by the statutory limitation period. The Tribunal's narrowing of the scope of Section 263 was not on the merits of the assessment but on the procedural ground of limitation. The Court did not find fault with the Tribunal's approach since the limitation period is a mandatory bar.

Key evidence and findings: The assessment was found to be erroneous and prejudicial to the Revenue's interests, but the revision order was passed after the expiry of the limitation period.

Application of law to facts: Despite the erroneous nature of the assessment, the Commissioner's order was invalid due to being time barred. The Court emphasized that procedural safeguards such as limitation periods cannot be ignored even when the assessment is flawed.

Treatment of competing arguments: The Revenue argued that the Commissioner's powers should not be curtailed by a narrow interpretation of limitation, especially when the assessment was prejudicial to Revenue. The Court rejected this, underscoring the mandatory nature of the limitation period.

Conclusions: The Tribunal was justified in restricting the Commissioner's power under Section 263 on the ground of limitation, notwithstanding the erroneous assessment.

3. SIGNIFICANT HOLDINGS

The Court held:

"The limitation of two years prescribed under Section 263(2) of the Act has to be reckoned from the date of the original assessment order under Section 143(3) of the Act, which is 31.08.2006."

"The order passed under 263(1) of the Act is with reference to an issue which is covered by the original assessment order and not with regard to the issue in the reassessment."

"Where the jurisdiction under Section 263(1) is sought to be exercised with reference to an issue which is covered by the original order of assessment under Section 143(3) and which does not form the subject matter of the reassessment, limitation must necessarily begin to run from the order under Section 143(3)."

"The Commissioner's power under Section 263 is subject to the limitation period prescribed under Section 263(2) and cannot be exercised beyond the statutory period."

The Court affirmed that the doctrine of merger does not apply to the original and reassessment orders when they deal with separate issues.

Final determination: The revision order passed under Section 263 was time barred and was rightly set aside by the Tribunal. The appeal by the Revenue was dismissed, and the substantial questions of law were answered in favour of the Assessee.