TMI Blog2022 (10) TMI 418X X X X Extracts X X X X X X X X Extracts X X X X ..... to the interest of revenue in allowing, either due to lack of enquiry or otherwise, is the original assessment order passed under section 143(3) of the Act and not the re-assessment order. Therefore, the period of limitation prescribed under section 263(2) of the Act would run from the original assessment order. Being conscious of the fact that the original assessment order could not be revised under section 263 of the Act due to bar of limitation, as provided under sub section (2) of section 263 of the Act, PCIT, as it appears, has proceeded to revise the assessment order passed under section 143(3) r.w.s. 147 of the Act to get over the hurdle of limitation. This, in our view, is impermissible. Thus, based on the foregoing reasoning, we hold that the impugned order of PCIT revising the order passed under section 143(3) r.w.s. 147 of the Act is unsustainable. Appeal of assessee allowed. - ITA No. 27/Chny/2022 - - - Dated:- 21-9-2022 - SHRI MAHAVIR SINGH , VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL , ACCOUNTANT MEMBER Appellant by : Ms. T. V. Muthu Abirami , Advocate Respondent by : Shri M. Rajan , CIT ORDER Per Mahavir Singh , Vice President : This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o loss has arisen in the hands of the assessee. The impugned piece of land admeasuring 1 acre at SF No, 83/3 was purchased by M/s SPE Builders Pvt. Ltd. by deed of sale dated 31/01/2011 regd. Doc No. 160/2011. It remained in the books of the company and hence the titular owner and the real owner is only the company and not the assessee. Therefore, the loss suffered by the company cannot be shifted to that of the assessee and by undertaking such an illogical process, taxable income in the hands of the assessee has been suppressed by incorrect set-oft of non-existent losses. 3.2 As per the statement of the assessee, the compensation to the extent of Rs. 1.16 crores has to be borne by the assesses for having received an advance of Rs. 2.45 crores from Mr. K. Sreejith. To this date, this amount of compensation has not been borne by the assessee but while the compensation has been paid from the coffees of the company, the liability or expenditure winch is to be tictually (named by the assessee was compensated by the company in which the assessee is a director and a substantial stakeholder. As per the provisions of S. 2(24 )(iv), any value of any benefit whether convertible into mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al position applicable to the facts of the present case. 7.4 Diversion of Income (loss) by transfer of overriding title at source of such nature should normally have the support of the statutory requirements or some decretal binding character of Courts of law, and in its absence the Income Tax Authorities have to examine such aspects carefully in comparison to the above two other categories of statutory requirements and the Court decrees. When examined carefully in this angle, the real purport and object of this private arrangement is nothing but tax avoidance which cannot be entertained. The real purpose of this revisionary proceedings is to reach the truth behind the transactions having the sole purpose of tax avoidance. 7.5 Therefore it is concluded that the assessee is not entitled to claim the loss of Rs. 1.16 crores, which is otherwise a loss that has arisen in the books of the company and not in the hands of the assessee. 8.1 On the second issue which falls in the ambit of taxation u/s 2(24)(iv), the assessee has himself stated that the liability belongs to him but such obligation was discharged by the Company in which he has substantial stake to the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment was completed, it means that the A.O accepted this loss claimed by the assessee as genuine in the assessment order passed u/s. 143(3) of the Act dated 28.12.2016. The Ld. Counsel for the assessee drew our attention to the notice issued u/s. 148 of the Act dated 30.03.2019 and the relevant reasons recorded supplied by the A.O vide letter dated 31.05.2019 and the relevant reasons reads as under: ...... Shri S. Pugazhendhi (AEIPP1Q97E), No.70, Raja Agraharam Street, Poonamallee, Chennai - 600056 is assessed to tax in this office and has filed his return of income for the AY: 2014-15 on 01/12/2015 (original) and has revised the same on 19/01/2015 claiming a loss of Rs. 64,34,177/-r The Assessment in this case was completed u/s 143(3) on 28/12/2016 on a loss of Rs. / 51,74,579/-. It is now gathered that the assessee has admitted to cash deposits of Rs. 50,00,000- which was made into the bank account of Shri K. Elango, an employee of the assessee during FY: 2013-14. This admission has been made before the ADIT, I CI Wing, Chennai. Though, the amount of Rs. 50.00,000/- was admitted by the assessee, he was unable to produce the books of account to substantiate the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment was reopened and reassessment was framed by the A.O u/s. 143(3) r/w s. 147 of the Act vide order dated 23.11.2019. According to him, once the assessment is reopened the entire assessment is before the A.O and the A.O should have looked into this aspect which was not considered by the A.O and hence, the reassessment order is actually erroneous and prejudicial to the interest of revenue. The Ld. CIT-DR hence, supported the order of the PCIT revising the assessment. 10. We have considered rival submissions in the light of decisions relied upon and perused materials on record. Before we proceed to deal with the substantive issue raised by the assessee, it is necessary to put on record the following dated and events in chronological order: Date Event 01.02.2014 Original return of income filed by the assessee 28.12.2016 Original assessment framed by A.O u/s. 143(3) of the Act 30.03.2019 Notice u/s. 148 issued 23.11.2019 Reassessment completed u/s. 143(3) r/w. s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded for reopening the assessment nor any other material on record demonstrate that the issue, in term of s. 2(24)(iv) of the Act, this benefit of Rs. 1.16 Crore has to be brought to tax, was ever a subject matter of dispute in the re-assessment proceedings either at the time of initiation of proceedings under section 147 of the Act or in course of the reassessment proceedings. 14. A reading of section 147 of the Act makes it clear that the assessing office, in course of proceedings under the said provision can not only assess / re-assess the escaped income based on which the assessment was reopened, but can also assess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under the aforesaid provision. Explanation 3 to section 147 of the Act further clarifies the substantive provision by saying that the assessing officer may assess or re-assess the income in respect of any issue which has escaped assessment and such issue comes to his notice subsequently in the course of proceedings under section 147 of the Act, notwithstanding that such issue does not form part of reasons recorded for reopening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in a case of this nature. 8. Furthermore, Explanation (c) appended to Sub-section (1) of Section 263 of the Act is clear and unambiguous as in terms thereof doctrine of merger applies only in respect of such items which were the subject matter of appeal and not which were not. The question came up for consideration before this Court in Commissioner of Income Tax v. Sun Engineering Works P. Ltd. [198 ITR 297]. Therein the assessee raised a contention that once jurisdiction under Section 147 of the Act is invoked, the whole assessment proceeding became reopened, which was negatived by the court opining: Section 147, which is subject to Section 148, divides cases of income escaping assessment into two clauses i.e. viz. (a) those due to the non- submission of return of income or non-disclosure of true and full facts and (b) other instances. Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Explanation (I) thereto. 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 f75 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 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 underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1 )(b), the Income-tax Officer had not only the jurisdiction, but it was his duty to levy tax on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings It was furthermore held: As a result of the aforesaid discussion, we find that in proceedings under Section 147 of the Act, the Income Tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice -under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14. The Madras High Court in A.K. Thanga Pillai (supra), in our opinion, has rightly considered the matter albeit under Section 17 of the Wealth Tax Act, 1957 which is in pari materia with the provisions of the Act. Relying on Sun Engineering Works P. Ltd (supra), it was held: Under section 17 of the Wealth-tax Act, 1957, even as it is under section 147 of the Income-tax Act, proceedings for reassessment can be initiated when what is assessable to tax has escaped assessment for any assessment year. The power to, deal with underassessment and the scope of reassessment proceedings as explained by the Supreme Court in the case of Sun Engineering [1992] 198 ITR 297, is in relation to that which has escaped assessment, and does not extend to reopening the entire assessment for the purpose of redoing the same de novo. An assessee cannot agitate in any such reassessment proceedings matters forming part of the original assessment which are not required to be dealt with for the purpose of levying tax on that which had escaped tax earlier. Cases of under assessment are also treated as instances of escaped assessment. The order of reassessment is one which deals with the assessment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006 was passed, has expired on 31 March 2009. Hence the exercise of the revisional jurisdiction in respect of the original order of reassessment is barred by limitation. This is sought to be obviated by the Commissioner of Income Tax by seeking to revise, under Section 263, the order dated 27 December 2007. The order dated 27 December, 2007 was passed after the assessment was reopened on the ground of an escapement of income under Section 147 and an order of reassessment was passed by which the claim under Section 72A came to be disallowed. The submission that has been urged on behalf of the assessee is that, since the assessment was opened and an order of reassessment was passed only one issue namely, the claim under Section 72A, when the Commissioner as a Revisional Authority under Section 263 seeks to exercise his jurisdiction on matters which did not form the subject of the order of reassessment, the period of limitation would begin to run from the original order of assessment. This submission which has been urged on behalf of the assessee would have to be accepted in view of the judgment of the Supreme Court in Commissioner of Income Tax V/s. Alagendran Finance Ltd. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sional jurisdiction reopened the order of assessment only in relation to lease equalisation fund which being not the subject of 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 jurisdiction rendering the entire proceeding a nullity. 8) Where an assessment has been reopened under Section 147 in relation to a particular ground or in relation to certain 2 (1992) 198 I.T.R. 297 specified grounds and, subsequent to the passing of the order of reassessment, the jurisdiction under Section 263 is sought to be exercised with reference to issues which do not form the subject of the reopening of the assessment or the order of reassessment, the period of limitation provided for in sub-section (2) of Section 263 would commence from the date of the order of assessment and not from the date on which the order reopening the reassessment has been passed. 9) Section 147 empowers the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot apply where the subject matter of reassessment and of the original order of assessment is not one and the same. In other words, where the assessment is sought to be reopened only one one or more specific grounds and the reassessment is confined to one or more of those grounds, the original order of assessment would continue to hold the field, save and except for those grounds on which a reassessment has been made under Section 143(3) read with Section 147. Consequently, an appeal by the assessee on those grounds on which the original order of assessment was passed and which do not form the subject of reassessment would continue to subsist and would not abate. The order of assessment cannot be regarded as being subsumed within the order of reassessment in respect of those items which do not form part of the order of reassessment. Where a reassessment has been made pursuant to a notice under Section 148, the order of reassessment prevails in respect of those items which form part of reassessment. On items which do not form part of the reassessment, the original assessment continues to hold the field. When the Assessing Officer reopens an assessment on a particular issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the order of reassessment dated 16 July 1987 passed under Section 147 held that the subsequent order made a fresh assessment of the entire income of the assessee. Once, in the exercise of the power under Section 147, the Assessing Officer had reassessed the entire income of the assessee, the Supreme Court held that the original order would stand effaced by the subsequent order. Srihari was, therefore, a case where the subject matter of the original order of assessment as well as of the order of reassessment was the same. This is distinct from the situation in the subsequent judgment of 3 (2001) 118 Taxman 890 (S.C.) Alagendran Finance where the Supreme Court noted that the subject matter of the original assessment and the order of reassessment, was not the same. The facts of the present case are similar to those in Alagendran Finance which must, therefore, apply. 12) For these reasons, we are of the view that the exercise of the revisional jurisdiction under Section 263 is barred by limitation. We clarify that this would not preclude the Revenue from taking recourse to any other remedy that may be available in law. 17. In any case of the matter, in our considere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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