TMI Blog2018 (10) TMI 1294X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in the special audit report and were made part of the reasons recorded as all items dealt in the special audit report were mentioned to be part of reasons recorded. Hence, the assessee’s plea that these items were not subject matter of reassessment is not at all sustainable and is totally against the facts arising out of the appeal. This aspect has also escaped the attention of the CIT who has justified the power to invoke section 263 otherwise on the plank that Explanation 3 of section 147 which in his opinion empowers him to do, despite the issue not being subject matter of reassessment. However, this Explanation 3 alone cannot empower the ld. CIT to exercise the jurisdiction over items which are not subject matter of the reassessment as held by the exposition of the Hon'ble jurisdictional High Court in the case of ICICI Bank Ltd. [2012 (2) TMI 308 - BOMBAY HIGH COURT]. The entire premise that these items were not made subject matter of reassessment fails inasmuch as these items were duly mentioned in the special audit report and all the items dealt in the special audit report were made part of the reasons recorded and the assessee is very much aware about the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed service costs, and Legal Professional charges (in part) were not subjected to any evident scrutiny that was called for in the circumstances. That it was also noticed that such expenses were subjected to due verification and assessment in the contiguous Assessment Years 2011-12 2012-13. That in the present assessment year 2010-11 the Assessing Officer had neither called for any details of the said expenditure claims, nor subjected them to any apparent examination. 3. Therefore, notice was issued to the assessee proposing to treat the reassessment order to be an erroneous so far as it is prejudicial to the interest of the revenue in terms of section 263 of the Act. 4. Against the above, the assessee made an elaborate submission. 5. The assessee inter alia submitted that the special audit u/s. 142(2A) of the Act was done in this case subsequent to the assessment order passed originally. Following was also noted in the assessee s reply: The details in respect of all the expense's ware verified by the special auditors in detail and discussed in the special audit report dated 23.09.2014. The reference in the special audit report is tabulated hereunder: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished these orders on the ground that because of Explanation 3 inserted below section 147, it provided that the reassessment can be done on any issue which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded. The ld. CIT found that the decision of the Hon ble Apex Court in the case of Alagendran Finance Ltd. (supra) was rendered before the insertion of this Explanation. As regards the decision of the Hon'ble Bombay High Court in the case of Lark Chemicals Ltd. (supra), he distinguished the same by observing that the Hon'ble jurisdictional High Court had no occasion to consider the impact of this explanation. Thereafter, the ld. CIT made the following observations: Reverting to the facts of the case on hand, it is seen that the original return filed on 30/09/2010 and assessed by an order u/s 143(3) dated 17/01/2010, contained a claim for five items of expenses viz., [a] Software support charges, [b)] Shared service cost, [c] Legal Professional charges, [d] Software license fees, and [e] SAP license fees, The subsequent Special Audit took in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Quality Steel Suppliers Complex, 84 taxmann.com 234 - 2017 (SC)P MOIL v, CIT, 8 taxmann.com 420 - 2017(Bom). CIT n Gen Developments (P) Uil. 7 1 taxrnan.corn 65 - 2016 (Bom), Pr CIT v. Kttmc/iam/ni Nttidn - R5 taxmun.com 127 - 2017 (Bom), and Melacaps Engineering Mahindra Construction Co. - 86 tax man, com 128 - 2017 ITAT Mumbai Bench. 10. It noted that this case law provided that the order did not become erroneous merely because there was no elaborate discussion. He noted that these case laws also mention that if two views are possible, the order did not become erroneous. Despite noting these case laws he held that in absence of any articulation of a view purportedly taken, it would be a case of non application of mind rather than taking one of the two possible views in the matter. The ld. CIT accordingly concluded as under: 8. In the light of the above, the order of reassessment dated 30/03/2016 is held (o he erroneous in so far as it is prejudicial to the interests of Revenue, in terms of section 263 of the Income Tax Act, 1961, for the omission to cause an examination of issues required to be examined in the circumstances of the case, and which were l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12, the Appellant was directed to get its books of account audited pertaining to AYs 2008-09 to 2011-12 by special auditor under section 142(2A) of the Act. Based on observations in the special audit report, the case of the Appellant for AY 2010-11 was reopened under section 147 of the Act. The reasons for re-opening the assessment for AY 2010-11 were provided vide letter dated 30.04.2015, which included observations of special auditors with respect to legal and professional charges and software license fees. The observations of special auditors with respect to software support charges, shared support service and SAP License fees [Ref: Page No.85 to 95 of Paper Book] did not form part of reasons for re-opening of assessment of AY 2010-11. [Ref: 97 to 106 of Paper Book] Ld. AO passed the reassessment order dated 30.03.2016 under section 143(3) r.w.s. 147 of the Act, making the following disallowances: a) Legal and Professional Charges - ₹ 1,40,000 (for want of documentary evidences) b) Software license fees - ₹ 1,55,18,705 (25% disallowance of expense) Thereafter, notice under section 263 of the Act was issued seeking revision i) Software Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcise of the jurisdiction under section 263(1} of the Act after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. It is an admitted position that the Commissioner of Income-tax has not exercised the revisional jurisdiction in respect of the order/intimation passed section 143(1] of the Act within two years of it being passed. Therefore, exercise of jurisdiction on those issues under section 263 of the Act is time barred as held by this court in CITv. Anderson Marine Sons (P.) Ltd. [2004] 266 ITR 694/139 Taxman 16. Moreover, in view of the decision of the apex court in the matter of Alagendran Finance Ltd.'s case (supra) as well as our court in the matter ofAshoka ~ Buildcon Ltd.'s case (supra) the jurisdiction under section 263 of the Act cannot be exercised on issues which were not subject matter of consideration while passing the order of reassessment under section 143(3)/147 of the Act but a part of an assessment done earlier under the Act. c) CIT vs ICICI Bank Ltd. [2012] 19 taxmann.com 142 (Bom) .....The order under section 143(3} passed on 10-3-1999 cannot stand merged with the orders of reassessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of Section 263. In other words, the impugned notice is hit by the vice of lack of jurisdiction. 2.2. In the instant case, the reassessment proceedings were initiated for specific reasons mentioned in notice dated 30.04.2015 which did not include i) Software support charges, ii) Shared support service and iii) SAP License fees. And only, legal and professional and software license fees were reassessed and disallowances were made. 2.3. Original assessment order was passed on 17.01.2013 of the Act, which was subject to revision under section 263 of the Act upto 31.03.2015 in terms of provisions of section 263(2] of the Act, whereas the notice for revision was issued on 28.06.2016, which is beyond the period of limitation. Hence, time barred. 2.4. Pr. CIT has made following contentions against our submissions as under: [Ref: 6.4 to 6.7, Page 19 to 21 of Paper Book] a) After the insertion of explanation 3 to Section 147 of the Act [Vide Finance Act, 2009, with retrospective effect], the AO can assess / re-assess any matters which come to their notice during proceedings, even though the same did not form part of reasons for re-opening. b) Further, decision of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, that vide notice issued under section 263 of the Act, the Pr. CIT also sought revision of legal and professional expenses, which were duly verified and for which appropriate disallowances were made Id. AO during reassessment proceedings. 3.2. The legal and professional expenses have already been verified during original assessment proceedings, special audit proceedings and re-assessment proceeding. 3.3. Hence, revision of aforesaid expense will tantamount to change of opinion. This view is supported by decision of Indira Industries vs Pr. CIT (supra), wherein it is observed that: ....The Principle of law is, it can be construed to be 'Change of Opinion' only when the same issue dealt with in re-assessment is raised again in proceedings under section 263. 4. Legal Position discussed in paras 2 and 3 above is summarized below: s. Nature of Expense Amount (In Rs.) Remarks 1 Software Support Charges 12,00,00,000 Time barring 2 Shared Support Services 4,20,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 had been disallowed on adhoc basis on account of suspicion, surmises and conjectures. Each year is a separate assessment year and has to be assessed on facts and circumstances prevailing in the said year. Considering the merits discussed above, the order dated 28.03.2018 under section 263 of the Act needs to be quashed. 13. Per contra, the ld. Departmental Representative submitted that the original assessment u/s. 143(3) in this case was done on 17.1.2013 and the special audit was done on 23.09.2014. That the items upon which the ld. CIT has exercised his jurisdiction u/s. 263 were not part of the original assessment. He submitted that even the issue of legal and professional fee was not logically dealt with. He submitted that all the issues submitted by the ld. Counsel of the assessee have been duly dealt with by the ld. CIT. The ld. Counsel of the assessee further placed reliance upon the decision of Hon ble Apex Court in the case of Amitabh Bachchan 389 ITR 200 (SC), and the Hon ble Apex Court in the case of Deniel Merchants P. Ltd. Anr. Vs. ITO (in Special Leave to Appeal (C) Nos.23976/2017) and Kolkata Tribunal decision in the case of Rising Tracom Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al independently and have come to the conclusion that the invocation of the jurisdiction under Section 263 was barred by limitation. Accordingly we answer the question of law in the affirmative. 16. From the above, we note that the Hon'ble jurisdictional High Court has opined that section 263 cannot be exercised in respect of issues which did not form a subject matter of reassessment proceeding u/s. 143(3) r/w s. 147. Further, the Hon ble High Court has observed that there is nothing on record of the present case to indicate that there was any other income which had come to the notice of the A.O. as having escaped assessment in the course of proceeding u/s. 147 and when he passed the order of the assessment. The assessee in the present case has accepted the proposition and its case is that since the above items of expenditure were not mentioned in the notice of reassessment, there was no occasion for the A.O. to consider the same. In this regard, we may gainfully refer to the reasons recorded for reopening as provided to the assessee submitted in paper book page nos. 97 to 106. The said reasons inter alia referred to the observation made in the special audit report. In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal charges Page 59 to 64 Software license fees Page 25 to 26 SAP license fees Page 24 to 25 18. From the above, it is evident that these items were duly mentioned in the special audit report and were made part of the reasons recorded as all items dealt in the special audit report were mentioned to be part of reasons recorded. Hence, the assessee s plea that these items were not subject matter of reassessment is not at all sustainable and is totally against the facts arising out of the appeal. This aspect has also escaped the attention of the ld. CIT who has justified the power to invoke section 263 otherwise on the plank that Explanation 3 of section 147 which in his opinion empowers him to do, despite the issue not being subject matter of reassessment. However, this Explanation 3 alone cannot empower the ld. CIT to exercise the jurisdiction over items which are not subject matter of the reassessment as held by the exposition of the Hon'ble jurisdictional High Court in the case of ICICI Bank Ltd . (supra). However, as evident from the above details, the entire premise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be disallowed, he should have spelt out the same. It is also not the case of the ld. CIT that there was something more in the special audit report on this issue which has not been examined by the A.O. The ld. CIT has not spelt out any such figure rather he has asked the A.O. to make further enquiry. In our considered opinion, this direction by the ld. CIT is not at all sustainable on the anvil of the decision of the Hon'ble jurisdictional High Court in the case of Gabriel India Ltd .(1993) 203 ITR 108 (Bom) mentioned by the ld. Counsel of the assessee before the ld. CIT himself. It is also settled law that if there are two views possible and if the A.O. has adopted one view with which the ld. CIT does not agree, the same will not give rise to the jurisdiction by the ld. CIT. This proposition is supported by the Hon ble Apex Court decision in the case of CIT vs. Max India Ltd. [2017] 79 taxmann.com 185 (SC). The decision from the Hon ble Apex Court in the case of Deniel Merchants P. Ltd. Anr (supra) and other case law referred by the ld. DR were with respect to case where no proper enquiry was made by the A.O. These case laws are not applicable on the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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