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2015 (5) TMI 587 - ANDHRA PRADESH HIGH COURT

2015 (5) TMI 587 - ANDHRA PRADESH HIGH COURT - [2015] 377 ITR 420 (T&AP) - Period of limitation for rectification of mistake u/s 154 - doctrine of merger - whether the limitation of four years u/s 154(7) would commence from the date of the assessment order dated 26.03.2007 and not from the date of re-assessment order, u/s 147 r.w.s. 148? - Incorrect set off of unabsorbed depreciation against Income (under normal provisions) - Held that:- In the present case, the assessment was reopened by issue .....

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under Section 148 is issued for the purpose of making re-assessment, the earlier proceedings get reopened and where the re-assessment under Section 147 is done, the initial order of assessment under Section 143 (3) ceases to be operative. Thus, the result of reopening the assessment under Section 148 is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of turnover escaping the assessment. Apart from that, in the prese .....

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passed by an Income-Tax authority. There cannot be any doubt that the re-assessment order under Section 147 read with Section 148 of the Act is also any order which could be rectified by issuing a notice under Section 154 of the Act. In other words, the words any order in Section 154 (1) (a) of the Act would mean even the re-assessment order under Section 147 of the Act. Merely because in the case under Section 154, it is the same Officer who invokes the jurisdiction and in the case under Sectio .....

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raphs, in particular Kundan Lal Srikishan [1987 (2) TMI 448 - SUPREME COURT OF INDIA] and H.R. Sri Ramulu (1977 (1) TMI 112 - SUPREME COURT OF INDIA), and in view thereof we hold that the doctrine of merger would apply to the facts of the present case. The limitation, therefore, would start to run from the date of re-assessment order dated 19.03.2010 and since the notice under Section 154 was issued on 31.08.2012, it was well within the time stipulated under sub-section (7) of Section 154 of the .....

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rit jurisdiction under Article 226 of the Constitution, when a notice under Section 154 of the Act would have to be decided on merits. It is true that the jurisdiction under Article 226 of the Constitution can be exercised in a case where the action complained of is without jurisdiction or is taken/initiated on assumption of power not vested in the Officer. It is well settled that where the exercise of power ex facie appears to be without jurisdiction, the Court would be inclined to interfere bu .....

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rs, by passing a speaking order. The 1st respondent is bound to furnish reasons for deciding the notice and deal with all contentions urged by the petitioners in their reply. In the circumstances, we are not inclined to entertain the second question raised for our consideration, and we keep all contentions of the parties, in respect thereof, open to be considered by the 1st respondent. W.P. dismissed. - WRIT PETITION No.29925 OF 2012 - Dated:- 15-4-2015 - SRI DILIP B.BHOSALE AND SRI A.RAMALINGES .....

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The 1st respondent issued the notice proposing to rectify a mistake in the order of re-assessment dated 19-03-2010, made under Section 143(3) of the Act. The mistake mentioned in the notice was incorrect set off of unabsorbed depreciation pertaining to Assessment Years 1993-94, 1994-95, 1995-96 and 1996-97 against income (under normal provisions) of Assessment Year 2005-06. 2. M/s. Rastriya Ispat Nigam Limited, (for short the assessee), the Government of India undertaking, is engaged in the bus .....

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₹ 1107.17 Crores and the tax thereon was worked out at ₹ 86.81 Crores. The return of income was accordingly processed under Section 143(1) of the Act on 31-03-2006, accepting the income returned, and it resulted in refund of ₹ 28.91 Crores. Thereafter, a case of the assessee was taken up for scrutiny and re-assessment was completed under Section 143(3) of the Act, vide order dated 26-03-2007, determining the total income at ₹ 3127,21,34,124/- and after setting off of the .....

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ccordingly assessed at ₹ 2266.25 Crores as against ₹ 1107.17 Crores admitted by the assessee. In this backdrop, the impugned notice dated 31.08.2012 under Section 154 of the Act was issued, proposing to rectify the mistake, as indicated in the notice, in the assessment completed vide order dated 19-03-2010. It would be relevant to reproduce the impugned notice dated 31.08.2012, which reads thus: NOTICE UNDER SECTION 154/155 OF THE INCOMETAX ACT, 1961 Office of the Assistant Commissio .....

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educing the refund/increasing your liability and therefore, if you wish to be heard in this connection you are requested to appear in person or by an authorized representative in my office at Visakhapatnam On 17-09-2012 at 11.30 AM. If so however, you intend sending a written reply to this notice and do not wish to be heard in person, you are requested to ensure that your reply reaches me on or before the date mentioned above. Yours faithfully, (Ch.HIMA BINDU) Assistant Commissioner of Incometax .....

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relevant time, depreciation to the extent it was not adjusted in any assessment could be carried forward and treated as depreciation for subsequent year, and so on until the entire unabsorbed depreciation was adjusted against the income. By Finance Act (No.2), 1996 w.e.f 04-07-1997, a time limit was introduced for adjusting the unabsorbed depreciation. After this amendment, such an unabsorbed depreciation could be carried forward only for a limited period of eight assessment years, subsequent to .....

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ct, 2001 w.e.f.01-04-2002 and the original provisions of Section 32 of the Act were restored, removing the time limit of eight years that was introduced with effect from 04.07.1997. In view thereof, according to the assessee, in the return filed for the Assessment Year 2005-06, which went through various processes as indicated above, the depreciation to the extent it was unabsorbed and had been determined upto the years 1996-97 was adjusted and as such their income was determined/computed at Nil .....

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assessee is that the re-assessment proceedings initiated vide notice dated 20.10.2009 under Section 148 of the Act was only to consider the book-profit that escaped the assessment at the time the original assessment was completed. 4. The question, therefore, falls for our consideration is whether the limitation for issuing notice under Section 154 of the Act, commences from the date of assessment order under Section 143 (3) of the Act or from the order of re-assessment under Section 147 read wit .....

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under Section 143 (3) got merged with the reassessment order dated 19.03.2010 and, therefore, limitation of four years under Section 154(7) would commence from the date of reassessment order under Section 147 read with 148 of the Act. 5. We have heard the learned counsel for the parties at considerable length and with their assistance gone through the entire material placed before us and the relevant provisions of the Act. We have also perused the judgments cited by them in support of their con .....

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the Act, and what was considered in the reassessment was only computation of income for the purpose of levy of Minimum Alternative Tax under Section 115JB of the Act. In short, he submitted that income under the regular provisions of the Act and the computation thereof was not touched in the order dated 19.03.2010. He, therefore, submitted that limitation provided in Section 154(7) of the Act would begin to run from the end of the financial year in which the order sought to be rectified was pass .....

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a Sarma, learned Counsel for the Revenue placed heavy reliance upon the judgment of the Supreme Court in Hind Wire Industries Ltd., Vs. Commissioner of Income Tax(AIR 1995 SC 1133 = (1995) 212 ITR 639) to submit that the order of assessment merges with the order of re-assessment and, therefore, the period of limitation requires to be computed from the order of reassessment. In present case, he submitted, the order of assessment under Section 143 (3) of the Act dated 26-03- 2007 merged with the o .....

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also refers to the details of mistake. He, therefore, submitted that when the notice specifically speaks about reassessment order dated 19-03-2010, the Court, at this stage of the proceedings, cannot proceed on the assumption that it was in respect of the regular assessment dated 26-03-2007. 8. In rejoinder, Sri S.Ravi, the learned Senior Counsel invited our attention to the judgment of the Supreme Court in Commissioner of Income Tax, Chennai Vs. M/s.Alagendran Finance Ltd.,(AIR 2007 SC 3005) an .....

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in Section 263 was necessitated by the fact that in the former case it is the very same officer invokes the jurisdiction, but in the latter case it is a superior officer. 9. Before we deal with the question, it would be advantageous to reproduce the relevant portion of Section 154 of the Act, which reads thus:- Rectification of mistake. 154. (1) With a view to rectifying any mistake apparent from the record an income -tax authority referred to in section 116 may,- (a) amend any order passed by .....

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e authority concerned- (a) may make an amendment under sub-section (1) of its own motion, and (b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee [or by the deductor], and where the authority concerned is the Commissioner (Appeals), by the [Assessing] Officer also. (3) .. (4) .. (5) .. (6) .. (7) Save as otherwise provided in section 155 or sub- section (4) of section 186 no amendment under this section shall be made after the expiry .....

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also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation proceedings under this section, ore recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an asse .....

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e fully and truly all material facts necessary for his assessment, for that assessment year: .. .. .. Explanation 2._ For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:- (a) .. (b) .... (c) Where an assessment has been made, but- (i) income chargeable to tax has been underassessed; or (ii) (iii) .. (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;] 10. .....

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articular the expression from the date of order sought to be amended therein, of the Supreme Court. The background facts against which the Supreme Court considered the said provision are that the assessee was assessed for income tax originally under the assessment order dated 21-09-1979. The assessee had filed a petition for rectification of the said order under Section 154 of the Act on the ground that the Income Tax Officer had not taken into consideration the shift allowance available to the .....

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ssistant Commissioner. In the appeal, the Tribunal allowed the application holding that application made on 4th July, 1986 was within 4 years of the fresh order of assessment made on 12th July, 1982 and hence within limitation. On reference, the High Court reversed the order of the Tribunal holding that the period of 4 years ought to have been calculated from the initial order of assessment viz., from 21st September, 1979 and not from the fresh order of assessment passed on 12th July, 1982. Ther .....

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not necessarily mean the original order. It can be any order including the amended or rectified order. 10.3 The Supreme Court considered several judgments to which we would make a brief reference in the subsequent paragraphs of this judgment. At this stage, we would like to reproduce the concluding paragraph in Hind Wire Industries Limited (supra) which reads thus: In view of these authorities taking the view that the word any in the expression order sought to be amended would mean even the rect .....

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d. V. Agriculture Income Tax Officer, (1989) 177 ITR 538: (1988 Tax LR 1505), and Commr. Of Income-Tax v. Kalinga Tubes (1991) 187 ITR 595, respectively in support of his contention that the word any used in the expression order sought to be amended would mean the original order of the assessment. As against this, Dr.Shankar Ghose, learned senior counsel referred us to the decisions of the Patna and Karnataka High Courts in Bihar State Road Corporation v. Commr.of Income-Tax, (1986) 162 ITR 114 .....

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lied) 11. The Supreme Court in M/s.Alagendran Finance Ltd., (supra) considered the question whether for the purpose of computing the period of limitation envisaged under Sub-section (2) of Section 263 of the Act, the date of order of assessment or that of the reassessment, is to be taken into consideration?. The question arose for consideration against the facts that the assessee had filed its returns for the Assessment Years 1994-95, 1995-96 and 1996-97 on 23-11-1994, 27-11- 1995 and 26-11-1997 .....

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n respect of three items viz, (i) the expenses claimed for share issue, (ii) bad and doubtful debts and (iii) excess depreciation on gas cylinders and goods containers. Although the assessees return in respect of lease equalization was not the subject matter of the reassessment proceedings, the Commissioner of Income Tax purported to invoke his revisional jurisdiction in terms of Section 263 of the Act and by an order dated 29-03-2004 held that the Orders of the Assessing Officer were prejudicia .....

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deduction made from the gross lease rent is only a provisional and not an actual expenditure, and therefore, the same was to be disallowed and added to the income returned. The Income Tax Appellate Tribunal found favour with the contention of the assessee that the said purported proceedings under Section 263 of the Act were barred by limitation. The Tribunal after referring to several decisions of the Supreme Court and High Courts, ultimately held that the order passed under Section 263 of the A .....

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9. We may at this juncture also notice the decision of this Court in Hind Wire Industries Ltd. (supra) wherein the decision of this Court in V. Jaganmohan Rao v. CIT and CEPT (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 .....

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on the entire income that had escaped assessment during that year." 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. (emphasis supplied) 11.4 Then, in paragraph 12 of the j .....

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ion whatsoever. It is not a case where the subject matter of reassessment and subject matter of assessment were the same. They were not. (emphasis supplied) 11.5 The Supreme Court, then proceeded to consider the judgment of Madras High Court in Commissioner of Wealth-Tax Vs. A.K.Thanga Pillai (252 ITR 260) and the judgment of the Supreme Court in Commissioner of Income Tax Vs. Shri Abuda Mills Ltd.,( 231 ITR 50) and in concluding paragraph 15 of the judgment (in M/s.Alagendran Finance Ltd.) obse .....

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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) 12. In Hind Wire Industries Ltd. (supra) the Supreme Court considered the provisions contained in Section 154 of the Act, in the light of almost similar facts. The only difference is that, in the case before the Sup .....

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ngs under Section 263 of the Act. While dealing with the question, on the facts and in the circumstances of the case, the Supreme Court observed that 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 .....

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that when the subject matter of re- assessment is distinct and different, the entire proceedings of assessment would be deemed to have been re-opened. 13. In International Cotton Corporation Vs. C.T.O(AIR 1975 SC 1604) the Supreme Court considered the similar expression in Rule 38 of the Mysore Sales Tax Act and while dealing with the point, as raised in the instant writ petition, in paragraph 9 of the judgment observed thus:- The other attack that the rectification order is beyond the point of .....

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of any order and there is no doubt that the rectified order is also any order which can be rectified under Rule.38 (emphasis supplied) 14. The decision of the Supreme Court in International Cotton Corporation(supra) was endorsed by the Supreme Court in Deputy Commissioner of Commercial Taxes Vs. H.R.Sri Ramulu(AIR 1977 SC 870) in the following terms:- The reason for that is that once an assessment is reopened, the initial order for assessment ceases to be operative. The effect of reopening the a .....

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ect of which there is no allegation of the turnover escaping assessment. As it is, we find that in the present case the assessment orders made under Section 12A were comprehensive orders and were not confined merely to matters which had escaped assessment earlier. In the circumstance, the only orders which could be subject-matter of revision by the appellant were the orders made under Section 12A of the Act and not the initial assessment orders. In the case of J.Jatganmohan Rao v. Commr. Of Inco .....

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sessment 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 under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proc .....

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is completely reopened and in its place fresh assessment is made. While considering the said decision, the Supreme Court dealt with the expression date on which the order was passed, which is similar to the expression, as aforementioned, in Sub-section (7) of Section 154 of the Act and observed that relevant provision did not qualify the word order and hence period of 4 years has to be calculated from the date of rectification order. For taking such view, the Supreme Court referred to its earli .....

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rnover, but it assesses him on his total estimated turnover. While making reassessment under Section 19, if the assessing authority has no power to make best judgment assessment, all that the assessee need to do to escape reassessment is to refuse to file a return or refuse to produce, taken on behalf of the assessee is correct, the assessee can escape his liability to be reassessed by adopting an obstructive attitude. It is difficult to conceive that such could be the position in law. 16. Obser .....

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lanation (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 .....

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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 inco .....

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n 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 .....

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ssment order, i.e., 07-02-1979 or whether it should be the date of order passed under Section 21 of the U.P. Sales Tax Act (15) 1948, i.e.18-01-1980 (for short the Sales Tax Act)? In this case, the original assessment order for the year 1975-76 was passed on 07-02-1979. The reassessment order under Section 21 of the Sales Tax Act was passed on 18-01-1980. Thereafter, in 1982 the assessee filed an application under Section 22 for the Assessment Years 1975-76, 1976-77, 1977-78 and 1978-79 for rect .....

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appellant/assessee for the year 1975-76 on the ground that the application was within limitation, holding that the original assessment order dated 07-02- 1979 had ceased to exist on the reopening of the assessment and the reassessment order being passed on 18-01-1980. The High Court set aside the order of Tribunal holding that the application for rectification of assessment for the Assessment Year 1975-76 had been filed beyond three years from the date of original order dated 07-02- 1979 and th .....

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r made on reassessment. The Supreme Court also observed that once an assessment order had been rectified and it was sought to make a further rectification of that order, the period of limitation for making such further rectification would commence not from the date of original assessment but from the date of earlier rectification order. The observations made by the Supreme Court in the concluding paragraph are relevant. Paragraph 9 of the judgment reads thus:- 9. We do not find any merit in the .....

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rt thereof, has escaped assessment to tax or has been under assessed or has been assessed to tax at a rate lower than that at which it is assessable under the Act, or any deductions or exemptions have been wrongly allowed in respect thereof, the assessing authority, may, after issuing notice to the dealer and making such inquiry as it may consider necessary, assess or re-assess the dealer or tax according to law. The assessing authority gets jurisdiction to make the reassessment by issuing a not .....

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under that section. The only order which the assessing authority is required to make under S. 21 after a notice is issued to the dealer under that section is an order of assessment or reassessment. It is not required to pass first an order whether it should proceed with the reassessment proceedings or not. Such a preliminary order is not contemplated under S. 21 of the Act. Hence the order dated 18- 1-1980 has to be treated as an order of assessment even though it is not in the form in which an .....

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he Act. We cannot, therefore, subscribe to the view of the High Court expressed in its observation that since no fresh order of assessment had been passed after examining the accounts of the assessee the original assessment order should be considered to remain intact as nothing is added or altered in pursuance of the order under S. 21 of the Act. (emphasis supplied) 18. In the present case, the assessment was reopened by issue of notice under Section 148 of the Act on 20-10-2009 and the re-asses .....

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hough the justification for reassessment arises in a limited field or only with respect to a part of matter covered by the initial assessment order. In other words, once a notice under Section 148 of the Act is issued for the purpose of making re-assessment, the earlier proceedings get reopened and where the re-assessment under Section 147 is done, the initial order of assessment under Section 143 (3) ceases to be operative. Thus, the result of reopening the assessment under Section 148 is that .....

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rds the order in section 263 of the Act would also have to be noticed and read to understand the words any order to mean even an order of re-assessment or the amended/rectified order passed by an Income-Tax authority. There cannot be any doubt that the re-assessment order under Section 147 read with Section 148 of the Act is also any order which could be rectified by issuing a notice under Section 154 of the Act. In other words, the words any order in Section 154 (1) (a) of the Act would mean ev .....

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rity. 20. In Hind Wire Industries Limited (supra), the Supreme Court was dealing with the provisions of Section 154 of the Act, as has fallen for our consideration in the present case, and in that case the subject matter of re- assessment was distinct and different and that the rectification sought was in respect of the same subject matter which was considered in the original assessment order. The facts of our case are similar. Having regard thereto, in our opinion, the present case, arising fro .....

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154 was issued on 31.08.2012, it was well within the time stipulated under sub-section (7) of Section 154 of the Act. 21. Thus, we answer the first question in the negative. 22. Next, the learned Senior Counsel for the petitioners raised a question whether the issues, which are highly debatable could be the subject matter of the proceedings under Section 154 of the Act. He submitted that the jurisdiction under Section 154 of the Act is extremely narrow and restrictive and could be exercised onl .....

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r Section 154 of the Act was issued on 31-08-2012 by the 1st respondent. The petitioners responded to it by an exhaustive reply submitted by them on 17-09-2012. In the reply, they raised all questions including the questions raised before us. It is apparent from the dates that the reply was submitted by the petitioners within the time stipulated in the notice dated 31-08-2012, and within less than three days therefrom the instant writ petition was filed. The questions whether the mistake, pointe .....

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