TMI Blog2016 (11) TMI 798X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in favour of assessee - Writ Tax No. 575 of 2016 - - - Dated:- 3-8-2016 - Sudhir Agarwal And Dr. Kaushal Jayendra Thaker, JJ. For the Petitioner : Suyash Agarwal, Rupesh Jain and Gaurav Jain, Advocates For the Respondent : C. S. C. and Gaurav Mahajan JUDGMENT 1. Heard Sri Rupesh Jain, advocate assisted by Sri Gaurav Jain and Sri Suyash Agarwal, advocates for petitioner and Sri Gaurav Mahajan, learned counsel for respondents. 2. This writ petition under article 226 of the Constitution has been filed by LG Electronics India Pvt. Ltd. (hereinafter referred to as the petitioner ) aggrieved by notice dated June 8, 2016, issued by the Principal Commissioner of Income-tax, NOIDA, Gautambudh Nagar (hereinafter referred to as the PCIT ) in exercise of power under section 263 of the Income-tax Act, 1961 (hereinafter referred to as the Act, 1961 ) in respect of the assessment year 2007-08. 3. It is contended that notice itself is barred by limitation hence it is void ab initio and without jurisdiction. 4. Return for the assessment year 2007-08 was filed by the petitioner on October 31, 2007 declaring income of ₹ 2,68,82,20,341. It was selected for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 passed under section 143(3) was erroneous and prejudicial to the interests of the Revenue inasmuch as sales tax subsidy of ₹ 20,58,34,234 accruing to the petitioner under the scheme of the Government of Maharashtra had not been brought to tax as revenue receipt . It is contended that the aforesaid notice dated June 8, 2016 is barred by limitation under section 263 of Act. 9. The only issue raised and pressed before this court is, whether the impugned notice is barred by limitation prescribed under section 263(2) of the Act, or not . 10. Section 263 of the Act reads as under : 263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation.-Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel for the petitioner submitted that for the purpose of section 263(1) the limitation will commence from the end of the financial year March 31, 2012 and two years period would elapse on March 31, 2014. 13. Learned standing counsel appearing for the respondent, on the contrary, submitted that the period of limitation would run from the date of reassessment order dated March 26, 2015 and, therefore, impugned notice is within limitation. 14. Sri Jain, learned counsel for the petitioner, argued that the original assessment order accepted sales tax subsidy by way of refund of value added tax received under the Maharashtra State Government as capital receipt and not chargeable to tax. Accepting the same, the Assessing Officer passed assessment order dated October 31, 2011 after due inquiry. The reassessment order did not refer to the aforesaid aspect of the matter and instead reassessment proceedings have been initiated on the ground of escaped assessment due to certain purchases made from outside India since no tax was deducted at source in respect thereto. He submitted that notice under section 263 has been issued raising an issue which relates to not the reassess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Deduction under section 35D 2,10,272 6. Incentive from Maharashtra VAT as claimed 20,58,34,234 7. Expenses under section 43B as claimed 8,68,12,113 8. Sums disallowed under section 40(a)(ia) in assessment year 2006-07 now claimed 6,76,72,351 9. Provision of expenses written off in assessment year 2007-08 but not allowed as deduction in the assessment year 2006-07 4,90,76,047 10. Sales tax receipt claimed in revised return as exempt is dis-allowed para No. 2. 61,00,79,579 20. The proceedings for reassessment were initiated vide notice dated June 19, 2014 issued under section 147 and the same is on record as annexure D to the writ petition. The Assessing Officer has given reasons for initiating reassessment proceedings stating that the petitioner is a permanent establishment of LG Electronics, Korea and its other associated enterprises. Its business connection and income is taxable as per sections 4, 5 and 9 of the Act, and articles 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer. Notice under section 263(1) has been issued with reference to reassessment, apparently to cover up the bar of limitation. The reason obvious is that judicial precedents have made out a difference in a case where the entire assessment is reopened and a fresh reassessment order is passed and in a case where one or two items of assessment order are reassessed and reconsidered and in other respect, initial assessment order is maintained. In a case where except one or a few items, original assessment order is maintained, it has been held that assessment order continue to remain subject to addition or modification by reassessment order and if a notice under section 263(1) has been issued with reference to an item of assessment order and not reassessment order, for the purpose of limitation it has to be seen whether it involves an issue of escaped assessment under the original assessment order or reassessment order. 24. Learned counsel appearing for the respondent when confronted with this factual background, did not and could not, dispute that notice under section 263(1) has been issued with reference to a discrepancy occurred in the assessment order dated Oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras High Court, who following its decision in CWT v. A. K. Thanga Pillai [2001] 252 ITR 260 (Mad), dismissed the appeal. Before the Supreme Court, the Revenue sought to argue that the order of assessment would merge with the order of reassessment and, therefore, for the purpose of notice under section 263, limitation would commence from the date when reassessment order was passed. After referring to section 263, the court held (page 7 of 293 ITR) : A bare perusal of the order passed by the Commissioner of Income- tax would clearly demonstrate that only that part of the order of assessment which related to lease equalization fund was found to be prejudicial to the interests of the Revenue. The proceedings for reassessment have nothing to do with the said head of income. Doc trine of merger, therefore, would not apply in a case of this nature. (emphasis added) 29. The court referred to section 263(1), Explanation (C) providing that the doctrine of merger would apply only in respect of such items which were subject matter of appeal and not which were not to fortify its view. 30. Distinction in the words assess and reassess was considered in CIT v. Sun Engineering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rine 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. (emphasis1 added) 32. The court also upheld the judgment of the Madras High Court in CWT v. A. K. Thanga Pillai (supra) and pointed out that same view was taken by the Calcutta High Court in CIT v. Kanubhai Engineers P. Ltd. [2000] 241 ITR 665 (Cal). Operative part of judgment in CIT v. Alagendran Finance Ltd. (supra) reads as under (page 12 of 293 ITR) : 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, bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue. Sub-section (2) of section 263 stipulates that no order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. That period of two years from the end of the financial year in which the original order of assessment dated December 27, 2006 was passed, has expired on March 31, 2009. Hence the exercise of the revisional jurisdiction in respect of the original order of reassessment is barred by limitation . . . The substantive part of section 147 as well as Explanation 3 enables the Assessing Officer to assess or reassess income chargeable to tax which he has reason to believe had escaped assessment and other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. There is nothing on the record of the present case to indicate that there was any other income which had come 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 sectio ..... 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