TMI Blog2013 (11) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings, the notice issued u/s 263 of the Act on 26-11-2008 from the end of the financial year 2004-05 is barred by limitation and consequently the order passed u/s 263 of the Act is also invalid - Order passed u/s 263 by the CIT being void ab initio – Decided in favor of Assessee. - ITA No.620/Hyd/2009 - - - Dated:- 18-10-2013 - Chandra Poojari And Saktijit Dey, JJ. For the Appellant : Shri V Shiva Kumar For the Respondent : Shri K Gnana Prakash ORDER:- PER : Saktijit Dey In this appeal, the assessee has challenged the order dated 27-2-2009 of CIT-II, Hyderabad passed u/s 263 of the Act pertaining to the assessment year 2002-03. The assessee has raised six grounds. 2. Ground Nos. 1 and 6 are general in nature and not required to be adjudicated upon. 3. In ground No. 2(a), the assessee has challenged the order passed u/s 263 of the Act to be barred by limitation. The ground reads as under:- "The CIT ought to have seen that the order passed u/s 263 of the Act is beyond the time limit specified in clause (2) of section 263 and therefore bad in law. 4. Briefly the facts are, the assessee is a limited company carrying on business in generation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and completed the assessment u/s 143(3) read with section 147 of the Act vide order dated 31-12-2007 by bringing to tax the income-tax reimbursed of amount of Rs.2,40,45,266/-. The Assessing Officer further concluded that the excess insurance premium received of Rs.1,37,82,234/- which was considered by the assessee while computing the deduction u/s 80IA has to be reduced from the income while computing the deduction u/s 80IA as it is not derived from the business. Accordingly, the Assessing Officer completed the assessment. After completion of the assessment u/s 143(3) read with section 147 of the Act vide assessment order dated 31-12-2007, the CIT in exercise of powers conferred u/s 263 called for the assessment records and after examining the same was of the view that the assessment order dated 31-12-2007 passed u/s 143(3) read with section 147 of the Act is erroneous and prejudicial to the interests of revenue as the Assessing Officer has not excluded the refund of excess insurance premium and gain from foreign exchange fluctuations the total amounting both issues was Rs.13,60,28,581/- which was not derived from generation of power while computing the deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that the original assessment in the case of the assessee was completed on 26-10-2004 and the reopening of the assessment was made on two grounds which are (i) income-tax reimbursed by APTRANSCO should have been assessed as income of the assessee and (ii) refund of excess insurance premium of Rs.1,37,80,234/- which was taxable u/s 41 was not eligible for deduction u/s 80IA. The reassessment order was passed on 31-12-2007 treating the income-tax reimbursed by AP TRANSCO as income of the assessee and also disallowing deduction/s 80IA on the refund of insurance premium holding the same as not eligible income for the purpose of deduction u/s 80IA of IT Act. 8. It was further submitted by the assessee that the CIT (A) vide order dated 25-8-2008 has also set aside the addition in respect of income-tax reimbursement by AP TRANSCO whereas in respect of deduction u/s 80IA on refund of excess insurance premium, the CIT (A) held that the refund received should be set off against insurance premium paid and only the balance, if any, should be considered for disallowance. It was submitted by the assessee that the reopening u/s 147 was not done for considering the disallowance of prior p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0IA of the Act. So far as refund of excess insurance premium is concerned, it was submitted that the Assessing Officer while completing the reassessment has already excluded refund of excess insurance premium of Rs.1,37,80,234/-. 10. The learned AR submitted that the assessment in case of the assessee was reopened specifically on two grounds which are for adding the income tax receivable and not allowing deduction u/s 80IA in respect of refund of insurance premium of Rs.1,37,80,234 and the reassessment was completed by bringing to tax the aforesaid two amounts. The additions/ disallowances were also challenged before the CIT (A). The CIT (A) while sustaining the addition on account of income-tax receivable directed the Assessing Officer to set off the insurance premium against the insurance premium paid and bring to tax only the balance amount if any. It was submitted that in the original assessment completed u/s 143(3) vide order dated 26-10-2004 the Assessing Officer has already considered all the issues on the basis of which the CIT has invoked his jurisdiction u/s 263 of the Act and these issues were not subject matter of reopening and also not subject matter of reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years from the end of the financial year in which the original assessment order u/s 143(3) of the Act was passed. Such contention of the assessee is based on the premises that the issue on which the CIT has invoked jurisdiction u/s 263 of the Act was never the subject matter of reassessment proceedings. Whereas it is the stand of the department that once the assessment is reopened, the entire issue is open for consideration by the Assessing Officer and if he fails to consider any other income in addition to the escaped income on the basis of which the reopening was made, then the limitation should begin to run from the order passed u/s 143(3) read with section 147 of the Act as this order is erroneous and prejudicial to the interests of revenue. 14. On a perusal of the reasons recorded for reopening of the assessment which was communicated to the assessee vide letter dated 4-7-2006 a copy of which is placed before us, the assessment was reopened on the following reasons:- "The assessee is in the business of generation and sale of power. The assessee company is having a Power Purchase Agreement with the TRANSO. As per clause 3.4 of the said PPA, the incometax paid by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - received during this year though was not eligible income for computing deduction u/s 80IA of the Act but the deduction was also allowed on the said income. The assessment was ultimately completed u/s 143(3) read with section 147 of the Act by the Assessing Officer on the basis of the aforesaid reasons recorded by bringing to tax the income tax receivable amounting to Rs.2,40,45,266/- and excluding from the income an amount of Rs.1,37,82,234/- for the purpose of computing the deduction claimed u/s 80IA of the Act. Thus, it would be clear the assessment u/s 143(3) read with section 147 of the Act was completed in terms with the reasons recorded. It is further revealed from the order of the CIT that he has directed the Assessing Officer to re-compute the deduction claimed u/s 80IA of the Act by excluding the amount of Rs.6,12,93,919/- being the excess insurance premium and the amount of Rs.8,85,14,896/- representing gain on foreign exchange fluctuation. 16. On perusal of the materials placed on record, it is seen that the amount of Rs.6,12,93,919/- is the refund of excess insurance premium relating to prior period and amount of Rs.11,08,69,955/- is relating to prior period incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessment which related to the lease equalisation fund was found to be prejudicial to the interest of the revenue. The proceedings for reassessment had nothing to do with that head of income and hence the doctrine of merger would not apply in a case of that nature. The Supreme Court further held that once an order of assessment is reopened, the previous assessment will be held to be set aside and the whole preceding would start afresh but that 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. Since the Commissioner in exercise of his revisional jurisdiction reopened the order of assessment in relation to the lease equalisation fund which was not the subject matter of the reassessment proceedings, the period of limitation provided under sub-section (2) of Section 263 would, it was held, begin to run from the date of the order of assessment and not from the order of re-assessment. 6. But the submission which has been urged by the counsel for the revenue is that the decision of the Supreme Court in Alagendran Finance was rendered on 27 July 2007 which was prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the notice of the Assessing Officer as having escaped assessment in the course of the proceedings under Section 147 and when he passed the order of reassessment. The Commissioner, when he exercised his jurisdiction under Section 263, in the facts of the present case, was under a bar of limitation since limitation would begin to run from the date on which the original order of assessment was passed. We must however clarify that the bar of limitation in this case arises because the revisional jurisdiction under Section 263 is sought to be exercised in respect of issues which did not form the subject matter of the reassessment proceedings under Section 143 (3) read with 147. In respect of those issues, limitation would commence with reference to the original order of assessment. If the exercise of the revisional jurisdiction under Section 263 was to be in respect of issues which formed the subject matter of the reassessment after the original assessment was reopened, the commencement of limitation would be with reference to the order of reassessment. The present case does not fall in that category." Sub-section (2) of Section 263 stipulates a period of limitation of two year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order and not from the re-assessment order. The Hon ble Court further held that the scope of reassessment cannot be extended to the extent of the issues which were never subject matter of re-assessment; hence the doctrine of merger would not apply. Therefore considered in the light of the ratio laid down as above by the Hon ble Bombay High Court, since the issues on which the CIT invoked jurisdiction u/s 263 were never subject matter of reassessment proceedings, the notice issued u/s 263 of the Act on 26-11-2008 from the end of the financial year 2004-05 is barred by limitation and consequently the order passed u/s 263 of the Act is also invalid. In this view of the matter, we hold that the order passed u/s 263 by the CIT being void ab initio is legally unsustainable and accordingly the same is set aside. 18. The ground raised by the assessee is thus allowed. 19. Since while deciding the assessee s ground No.2(a), we have held that the order passed u/s 263 of the Act being barred by limitation is legally unsustainable, the other grounds raised by the assessee on merit of the issues are rendered merely academic in nature and hence not required to be adjudicated upon. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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