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2016 (11) TMI 798 - ALLAHABAD HIGH COURT

2016 (11) TMI 798 - ALLAHABAD HIGH COURT - [2016] 388 ITR 135 - Revision u/s 263 - period of limitation - Subsidy by way of sales tax incentive received - revenue or capital receipt - Held that:- 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 whe .....

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that view of the matter, impugned notice, evidently is barred by limitation prescribed under section 263(2) of Act, 1961. - Decided 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 .....

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61") 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 scrutiny and after verification/examination draft assessment order under section 143(3)/144C(1) of Act, 1961 was passed on December 27, 2010 proposing some disallowances and addi .....

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filed objection before dispute resolution panel (hereinafter referred to as the "DRP"), whereupon direction under section 144C(5) was issued on September 27, 2011 to the Assessing Officer to pass final order. The Assessing Officer thereafter made final assessment on October 31, 2011 assessing total income to ₹ 5,83,91,17,785 after making addition of ₹ 61,00,79,579 on account of sales tax incentive treating it as revenue receipt. 6. The petitioner preferred appeal being I. T .....

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ed notice dated March 21, 2014 under section 148 alleging that in the assessment year in question there is a escaped assessment on account of failure to disallow expenditure on purchases from overseas in terms of section 40(a)(i) of Act, 1961 for non deduction of tax at source from such payment. Reassessment order was passed on March 26, 2015 after making disallowance of purchase of ₹ 13,89,59,995. Aggrieved thereto the petitioner has filed appeal before the Commissioner of Income-tax (App .....

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ra 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 i .....

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l of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988, by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A ; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an .....

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g Officer had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) 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. (3) Notwithstanding anything contained in sub .....

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period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded." (emphasis added) 11. The limitation prescribed under section 263(2) for exercise of power under sub-section (1) thereof is two years from the end of the financial year in which the order sought to be revised was passed. 12. Learned counsel for the petitioner submitted that for the purpose of section 263(1) the limitation will commence from the end of the financial year .....

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vernment 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 2 .....

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55 (Bom) and CIT v. ICICI Bank Ltd. [2012] 343 ITR 74 (Bom). 15. Per contra, learned standing counsel submitted that sections 2(8) and 2(40) of the Act, defines terms "assessment" and "regular assessment". Assessment includes reassessment. Assessment made under section 143 or 144 is termed as "regular assessment", therefore, it does not include reassessment made under section 147. The meaning of "assessment", therefore, has to be seen in this context. 16. .....

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essment order dated October 31, 2011 or reassessment order dated March 26, 2015". 18. The assessment order dated October 31, 2011 is on record as annexure B to the writ petition. In computation of income the Assessing Officer has made the following additions : Additions as discussed above (Rs.) 1. Sales tax subsidy 61,00,79,579 2. Provision for service warranty 7,79,04,573 3. Royalty 81,98,02,800 4. International transaction 2,26,61,73,676 19. Assessing Officer also allowed the following de .....

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duction 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, .....

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tances are given in a chart which totalled to ₹ 18,08,65,60,127. 21. After considering reply of the assessee and examining the matter in detail, the Assessing Officer made addition of ₹ 13,89,59,995 under section 40(a)(ia) of the Act, 1961 bringing total assessed income to ₹ 5,97,80,77,790. Thus "reassessment" order was not for review or reassessment of entire case but only in respect of a particular item, i.e., transactions outside India on which no tax was deducted .....

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nd examination of the assessee's submissions, income of the assessee is computed as under : Income as per order under section 143(3),144C dated October 31, 2011 ₹ 583,91,17,790 Addition as per para. 2 above ₹ 13,89,59,995 Assessed income ₹ 597,80,77,785 Or say ₹ 597,80,77,790 22. Now the notice under section 263(1) shows that the respondent, though has referred to the "reassessment order" showing total taxable income determined therein but in fact has referr .....

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ed 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 th .....

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dispute that notice under section 263(1) has been issued with reference to a discrepancy occurred in the assessment order dated October 31, 2011 and it has nothing to do with the reassessment order dated March 26, 2015. 25. Now in the light of the above facts we may examine the judicial authorities, whether limitation in such a case, for the purpose of notice under section 263(1), will commence from original "assessment order", discrepancy whereof is the foundation for notice under sec .....

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e reassessment, is to be taken into consideration ?" (emphasis added) 27. Therein also for the assessment years 1994-95, 1995-96 and 1996-97, assessment was completed on February 27, 1997; March 12, 1997 ; and March 30, 1998, respectively. In all the assessment years, the assessee's return under the head "Lease equalisation fund" was accepted. The Assessing Officer initiated reassessment proceedings under section 148 in respect of the following three items : "(i) the expe .....

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cer is prejudicial to the interests of the Revenue as the lease rentals had not been properly brought to tax. The assessee contended that the said order of the Commissioner under section 263 was barred by limitation, and in appeal, preferred before the Tribunal, he succeeded. The Tribunal held that error pointed out in the revisional order under section 263 was in the order of 28. the assessing authority passed in regular assessment and not reassessment, therefore, barred by limitation under sec .....

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he 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 .....

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ived by the court holding as under (page 310) : "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 income or recompute the loss or depreciation allowance' in section 147 after the conditions for reassessment are satisfied, is only relatable to the pre ceding expression in clauses (a) and (b), viz., 'escaped assessment'. The term &# .....

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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 that there has been under assessment on account of the existence of any of the grounds contemplated by the provisions of section 147(b) read with Explanation (1) thereto." (emphasis added) 31. Referring to above exposition of law, court in CIT v. Al .....

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ven the Tribunal found that all the subsequent events were in respect of the matters other than the allowance of 'lease equalization fund'. The said finding of fact is binding on us. Doctrine 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 t .....

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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, been invoked by the Commissioner of Income-tax beyond the period of limitation, it was wholly without juri .....

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deduct tax at source under section 194H on three air time provided to distributors and under section 194J on roaming charges paid to other network operators. These issues were different from the subject matter of reassessment order. The Delhi High Court held that the subject matter is different since the Commissioner has found error in regular assessment order, hence limitation shall commence for regular assessment order. 34. To the same effect is the Division Bench judgment of the Bombay High C .....

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nces in cases, inter alia, of amalgamation and merger was wrongly allowed. The Commissioner of Income-tax issued notice dated April 30, 2009 under section 263 though referring to reassessment order but in effect pointing out an error in regular assessment order dated December 27, 2006. Relying on CIT v. Alagendran Finance Ltd. (supra), Bombay High Court said as under (578 of 325 ITR) : "Section 263 empowers the Commissioner to call for and examine the record of any proceedings under the Act .....

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vised 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 ass .....

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