Income Tax Appellate Tribunal - Mumbai
Housing Development And ... vs Principal Commissioner Of Income Tax ... on 10 January, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
"H" Bench, Mumbai
Before S/Shri B.R. Baskaran (AM) & Sandeep Gosain (JM)
I.T.A. No. 3530/Mum/2018 (Assessment Year 2009-10)
I.T.A. No. 3531/Mum/2018 (Assessment Year 2010-11)
M/s. Housing Development Principal CIT
and Infrastructure Ltd. Vs. Central-3
9 t h Floor, HDIL Towers Room No. 1901
Anant kanekar Marg 19 t h Floor, Air India
Bandra East Building
Mumbai-400 051. Nariman Point
Mumbai-400 021.
PAN No. AAACH5443F
(Appellant) (Respondent)
Assessee by Shri K. Shivaram &
Shri Rahul K. Hakani
Department by Shri Sunil Kumar Jha
Date of Hearing 17.10.2018
Date of Pronouncement 10.01.2019
ORDER
Per B.R. Baskaran (AM) :-
Both the appeals filed by the assessee are directed against the revision orders passed by Ld Pr. CIT (Central)-3, Mumbai u/s 263 of the Act and both the appeals relate to the assessment years 2009-10 and 2010-11. The assessee is challenging the validity of revision orders. Both the appeals were heard together as the issues contested therein are identical in nature and they are also being disposed of by this common order, for the sake of convenience.
2. The assessee is engaged in the business of real estate and infrastructure development.
3. We shall first take up the appeal filed for AY 2009-10. The original assessment for this year was completed u/s 143(3) r.w.s. 153A of the Act on 30-12-2011 determining total income at Rs.451.88 crores. Subsequent to passing of order u/s 254 dated 24.6.2014 & u/s 154 dated 17.11.2014, the 2 M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
total income was determined at Rs.256.50 crores. The then Pr. CIT revised the order passed on 24.6.2014 u/s 263 of the Act. In the appeal preferred by the assessee against the above said revision order, the ITAT set aside the revision order, vide its order dated 01-09-2017.
4. The assessing officer, thereafter, reopened the assessment by issuing notice u/s 148 of the Act on 29.03.2016 and completed the assessment on 28.12.2016 determining the total income at Rs.278.28 crores and the book profit at Rs.588.91 crores. The impugned revision order is claimed to have been passed against the assessment order dated 29-03-2016 passed in reassessment proceeding.
5. On examination of assessment record, the Ld Pr. CIT noticed that the assessee company has reduced Rs.225.00 crores relating to Debenture Redemption Reserve (DRR) from the Net Profit, while computing Book profit u/s 115JB of the Act. The assessee company did so treating the amount appropriated to Debenture Redemption Reserve as an "ascertained liability". The Ld Pr. CIT took the view that the Debenture Redemption Reserve was merely an appropriation from such net profit and was a transaction on Capital Account and hence the same is not allowable as deduction under the provisions of the Income tax Act. Accordingly, the Ld Pr. CIT initiated revision proceedings in order to enhance the book profit by the amount of Debenture Redemption Reserve.
6. The assessee opposed the initiation of revision proceedings. The contentions of the assessee raised before Ld Pr.CIT, as discussed by Ld Pr. CIT, are extracted below:-
3. Against the above notice dated 28.02.2018, Shri Nimesh Thar, CA and AR of the assessee company appeared and filed written submissions vide order sheet entry dated 22.03.18. The arguments put forth by the assessee company against the revision u/s 263 of the IT Act are summarised as under:3
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a) The allowability to claim of deduction of Rs 225,00,00,000/-
from the net profit towards amount credited into Debenture Redemption Reserve while computing book profit u/s 115JB of the IT Act was not the subject matter of reopening made vide notice u/s 148 of the IT Act dated 29.03.016 and the claim of DRR of Rs 225 Crores was a concluded item of an assessment order passed u/s 143{3) rws 153A on 30,12.2011. Thus, it was allowed in the re-assessment proceedings as well.
b) The learned AO during the course of original assessment proceedings had made complete inquiry in this regard and in accordance with the decision of the jurisdictional Bombay High Court allowed the above claim to the assessee. Thus, the claim was allowed after enquiry and verification. There was total application of mind by the AO in the original assessment proceedings and thereby same was allowed while passing the order u/s 143(3) rws 147 of the Act dated 28.12.2016 and therefore the revisionary powers cannot be exercised in garb of verification or investigation.
c) The jurisdictional Bombay High Court in the case of CIT-2, Mumbai vs Raymond Ltd [2012] 21 Taxmann.com 60 (Bom.) upheld the judgment of the Hon'ble ITAT Mumbai bench in ITA No 4235/Mum/2OOO in the case of Raymond Ltd vs JCXT and held that the mere fact that a DRR is labelled as a reserve will not render it as a reserve in true sense or meaning of that concept and the tribunal was correct in holding that the amount which was set apart as a DRR is not a reserve within the meaning of Explanation (b) to Section 115JA of the IT Act 1961. Further reliance is placed on the judgment of jurisdictional ITAT in the case of JSW Energy Ltd vs Assistant Commissioner of Income Tax, Circle -11(5). Further reliance is placed on certain other judgment from Mumbai Tribunal and Ahmedabad Tribunal.
d) The reliance is also placed on the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd vs CIT [2002] 255 ITR 273/122 Taxman 562, wherein the Apex Court held that once accounts prepared as per Companies Act are verified by the authorities under Companies Act, it is not open to the AO to make changes in the accounts so prepared for the computation of book profit. Further reliance is placed on judgment of Bombay High Court in the case of CIT vs Akshay Textiles Trading & Agencies Pvt Ltd [2008] 304 ITR 401/167 Taxman 324 and CIT vs Adbhut Trading Co Pvt Ltd [2011] 338 ITR 94/20 Taxmann.com 419 (Bom); and the judgment of ITAT in the case 4 M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
of Forever Diamons Pvt Ltd vs Dep CIT, Central's. 1, Mumbai [2013] 31 Taxmann.com 151 (Mum).
e) DRR could not be added to calculate book profits u/s 115JB of the Act as it does not fall under any of the clauses specified, even does not fall under clause (c), (As DRR is ascertained liability) under the Explanation 1 to Section 115JB of the IT Act.
f) The entire mechanism for the computation of the book profit is clearly set-out in sub section (1) of Section 115JB read with Explanation thereto, so the computation of the book profit is to be done strictly as per the Explanation to section 115JB of the Act and hence no assistance from any other section of the Act can be taken for that purpose.
g) The decision of the Hon"ble High Court and the Hon'ble Supreme Court was duly relied upon by the assessee company before the CIT (A)-53, Mumbai for the AY.-13-14 who after considering the same allowed the reduction of DRR, while computing book profit u/s 115JB of the Act to the assessee company. Since the subject issue to revision proceedings is in favour of the assessee company by the jurisdictional Bombay High Court, therefore decision of the same is applicable to the assessee company and therefore the same is neither erroneous nor prejudicial to the interest of the Revenue.
h) The claim of DRR of Rs 225 Crores stood settled in the original assessment order dated 30.12,2011 passed u/s 143(3) rws 153A of the Act itself. The subsequent assessment order dated 28.12.2016 passed u/s 143(3) rws 147 of the IT Act was for limited issue of alleged on-money only, by virtue of which period of limitation as mentioned in section 263(2) of the IT Act got triggered i.e. 2 years (i.e. upto 31.03.14) had expired from end of financial year in which original assessment order dated 30.12.2011 passed u/s 143(3) rws 153A of the IT act and therefore proposed revision order u/s 263 of the IT Act could not be made. The reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of CIT vs Shri Arbuda Mills Ltd [1998] 231 ITR 50 (SC).
i) The AO has held that the claim of the DRR is correct and accepted accordingly. This is one of the possible views in accordance with law as per the decision of the Hon'ble Supreme Court in the case of Ma la bar Industrial Co Ltd Vs CIT (2000) 243 ITR 83 (SC).
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7. The Ld Pr. CIT was not convinced with the contentions of the assessee. He observed that the provisions of sec. 115JB do not provide for reduction of Debenture Redemption Reserve from the Net Profit. He also observed that the assessee has only appropriated its profit towards Debenture Redemption Reserve and hence the audited accounts are not being tinkered with. The Ld Pr. CIT observed that the Reserve created for redemption of debentures is for the payment of Capital liability and hence it cannot be considered as a Charge while determining profits under recognised method of accounting.. In this regard, he took support of decision rendered by Bangalore bench of ITAT in the case of D.R Ranka Charitable Trust vs. DIT (2010)(3 ITR (AT)
151). In the above said case, it was held that the reserve created for redemption reserve may be towards an ascertained liability, but it operates on Capital field and hence it could not be deducted in computing book profit. The Ld Pr. CIT also placed reliance on the decision rendered by Hon'ble Delhi High Court in the case of SREI Infrastructure Finance Ltd (ITA 371 & 372/2012 dated 13-02-2015), wherein the Hon'ble Delhi High Court considered the decision rendered by Hon'ble Supreme Court in the case of National Rayon corporation (1997)(227 ITR 764) and explained the difference between appropriation of profit and charge on profit. The Ld Pr. CIT also took support of the discussions made by the co-ordinate bench in the case of JSW Energy Ltd vs. ACIT (2013)(34 taxmann.com 152).
8. It is pertinent to note that the assessee had placed its reliance on the decision rendered by Hon'ble Bombay High Court in the case of Raymond Ltd (supra), wherein it was held that the Debenture Redemption Reserve a liability and the same is deductible while computing book profit u/s 115JA of the Act. With regard to the same, the Ld Pr. CIT expressed the view that the Hon'ble Bombay High Court has not examined the aspect that the debenture redemption reserve is an appropriation towards capital liability and not a charge on profit. Accordingly the Ld Pr. CIT took the view that the decision rendered in the case of Raymond Ltd (supra) is per incuriam decision. He also 6 M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
noticed that the Ld CIT(A) has not followed the said decision in the assessee's own case in AY 2014-15 for the very same reason.
9. The Ld Pr. CIT also observed that the assessee has not shown that assessing officer, during the course of original assessment proceedings completed u/s 143(3) r.w.s 153A of the Act, did examine the issue of allowability of Debenture Redemption Reserve. Accordingly he expressed the view that the decision rendered by Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd (supra) shall not be applicable, since the AO has not formed any view in this matter.
10. The assessee also contended that the revision proceedings could not have been initiated, since the original assessment has been completed by the AO on 30-12-2011 and this issue is not subject matter of reopening of assessment made u/s 148 of the Act. Accordingly, it was contended the time limit for initiation and completion of revision proceedings should be recognised from 30-12-2011, in which case, the impugned revision order is barred by limitation. The Ld Pr. CIT did not agree with the said contentions. He took support of Explanation 3 to sec. 147 of the Act, which empowered the AO to assess or reassess the income in respect of any issue which has escaped assessment, notwithstanding that the reasons for such issue have not been included in the reasons recorded for reopening before giving notice u/s 148 of the I T Act. Accordingly, the Ld Pr. CIT took the view that even though the AO has not specified the issue relating to DRR in the reasons recorded for reopening of assessment, he was obliged to enquire upon the said issue while completing the assessment u/s 143(3) r.w.s. 147 of the Act. Since the AO has failed to examine the said issue in his order passed u/s 143(3) r.w.s. 147 of the Act, the Ld Pr. CIT held that the said assessment order is erroneous and prejudicial to the interests of the Revenue.
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147 of the Act with the direction to the AO to re-compute the Book Profit u/s 115JB of the I T Act after disallowing the claim of reduction of amount of Rs.225.00 crores transferred to Debenture Redemption Reserve from the Net Profit.
12. The assessee is aggrieved by the revision order so passed by Ld Pr. CIT.
13. The Ld A.R submitted that the impugned revision order passed by Ld CIT(A) is barred by limitation. He submitted that the provisions of sec.263(2) provide a time limit of two years from the end of the financial year in which the order sought to be revised was passed, for passing revision order u/s 263 of the Act. He submitted that the original assessment u/s 143(3) r.w.s. 153A of the Act was passed for AY 2009-10 on 30.12.2011. The AO has allowed deduction of Debenture Redemption Reserve while computing book profit u/s 115JB of the Act in the original assessment order. If the Ld Pr. CIT considers it to be a mistake, then the outer time limit available for revising the original assessment order was 31.3.2014. However, the Ld Pr. CIT has passed the impugned revision order on 26-03-2018.
14. The Ld A.R submitted that the assessing officer has reopened the assessment u/s 147 of the Act on 29.03.2016 and passed the reassessment order on 28.12.2016. The Ld Pr. CIT has taken into consideration the reassessment order and accordingly passed the impugned revision order on 26.03.2018. He submitted that the AO has reopened the assessment only to examine the transactions entered between the assessee company and Boomi group. Accordingly he submitted that the matter relating to deduction of DRR from the Net profit for the purpose of computing book profit u/s 115JB has been concluded in the original assessment proceedings. Accordingly the Ld A.R contended that the material date for computing the time limit for passing revision order is the date of original assessment order, i.e., 30-12-2011. In this regard, the Ld A.R placed his reliance on the following case laws:-
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(a) Ashoka Buildcon Ltd vs. ACIT (325 ITR 574)(Bom)
(b) CIT vs. ICICI Bank Ltd (2012)(343 ITR 74)(Bom)
15. On the contrary, the Ld D.R placed his reliance on Explanation 3 to sec.
147 of the Act, which reads as under:-
"Explanation 3:- For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section
148."
He submitted that the AO has omitted to examine the issue of DRR in the reassessment proceedings in terms of Explanation 3 cited above, even though it was not mentioned in the reasons for reopening. Accordingly he submitted that the revision order passed by Ld Pr. CIT cannot be considered as time barred.
16. We heard the parties on this preliminary issue. For the purpose of computing book profit u/s 115JB of the Act while furnishing return of income, the assessee has reduced the DRR from Net profit treating the same as ascertained liability. The AO has also accepted the same in the original assessment order passed on 30-12-2011. It is an admitted position that the assessing officer has reopened the assessment only to examine certain financial transactions entered between the assessee and Bhoomi group, i.e., it was not the case of the AO at the time of reopening of assessment that the claim of DRR has resulted in escapement of income. However, the Ld Pr. CIT has taken the view that the reassessment order passed by the AO would give right to him to revise the reassessment order u/s 263 of the Act, since the AO has failed to examine the claim of DRR in the reassessment proceedings. Hence the question that arises is whether the time limit for passing revision order on an issue, which was not subject matter of reopening, shall commence 9 M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
from the date of original assessment order or from the date of reassessment order.
17. The Ld A.R placed his reliance on the decision rendered by Hon'ble Bombay High Court in the case of Ashoka Buildcon Ltd (supra). In the above said case, the original assessment order was passed by the AO on 27.12.2006. The AO, thereafter, reopened the assessment on 06.03.2007 and passed the reassessment order on 27.12.2007. The AO had reopened the assessment in order to disallow the claim of set off of brought forward losses and unabsorbed depreciation. The Ld CIT initiated revision proceedings u/s 263 of the Act on 30-04-2009 in order to revise the reassessment order passed on 27.12.2008 on some other issues. The assessee contended that, if one looks at the issues sought to be revised by Ld CIT, what is sought to be revised is the original assessment order dated 27.12.2006. The assessee's contentions were accepted by Hon'ble Bombay High Court. The relevant discussions made by Hon'ble Bombay High Court and the order passed by it are extracted below:-
6. The impugned notice dated 30-4-2009 adverts to issues which, as a matter of fact, do not form either the subject-matter of the notice that was issued under section 148 on 6-3-2007 nor the order of reassessment thereupon which was passed on 27-12-2007. The jurisdiction under section 263 is sought to be exercised with reference to issues which are unrelated to the grounds on which the original assessment was reopened and reassessed. Hence for the sake of clarity, it would be appropriate to set out at this stage the basis on which the notice under section 263 has been issued. According to the impugned notice : (i) On a perusal of the assessment order, it was seen that several payments were made to associated concerns which fell in the category of section 40A(2)(b) which expenses were allowed by the Assessing Officer without calling for the assessee to explain the reasons for the entries in the expenses for the previous year; (ii) The Assessing Officer did not examine the claim under section 36(1)(iii) as regards interest on advances furnished by the assessee to associate companies for which interest was paid on funds borrowed from Financial Institutions; (iii) In respect of the squared up accounts, the Assessing Officer did not examine the genuineness of the transactions pertaining to certain losses and advances at the time when he made the assessment; (iv) The Assessing Officer failed to examine the increase in deposits in the previous year; (v) The Assessing Officer did not conduct 10 M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
an inquiry into the genuineness of the advances and depreciation during the year; (vi) The Assessing Officer failed to make an inquiry into the genuineness of a liability in the Share Suspense Account; (vii) The Assessing Officer did not conduct an inquiry in respect of the liability in the Share Premium Amount. According to the impugned notice, the failure of the Assessing Officer to examine the aforesaid issues, to verify the justification of the claims and to conduct inquiries to ascertain the correctness of the claim of expenditure, rendered the assessment erroneous and prejudicial to the interests of the revenue.
7. Section 263 empowers the Commissioner to call for and examine the record of any proceedings under the Act and to pass such orders as the circumstances of the case justify, including an order enhancing, modifying or cancelling the assessment and directing a fresh assessment, if he considers that any order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of 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 27-12-2006 was passed, has expired on 31-3-2009. 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 27-12-2007. The order dated 27-12-2007 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 Alagendran Finance Ltd.'s case (supra). The issue which arose before the Supreme Court was whether, for the purpose of computing the period of limitation envisaged under sub- section (1) of section 263, the date of the order of assessment or of the order of reassessment is to be taken into consideration. In that case, the assessee filed its return for assessment years 1994-95, 1995-96 and 1996-97 and the assessments were completed on 27-2-1997, 12-5-1997 and 30-3-1998. In the orders of assessment, the return of the assessee under the head of "Lease Equalisation Fund" were accepted.
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Proceedings for reassessment were initiated by the Assessing Officer and orders of reassessment were passed in respect of the following items namely : (i) expenses claimed for share issue; (ii) bad and doubtful debts; and (iii) excess depreciation on gas cylinders and goods containers. Though the return of income in respect of the "Lease Equalisation Fund" was not the subject-matter of the reassessment proceedings, the Commissioner of Income-tax invoked his revisional jurisdiction under section 263 and by his order came to the conclusion that the assessee had not furnished complete details and the order of the Assessing Officer was prejudicial to the interest of the revenue. The Tribunal held that the order which was passed under section 263 on 29- 3-2004 was barred by limitation. The Supreme Court held that the Commissioner of Income-tax, while exercising his jurisdiction under section 263 found that only that part of the order of assessment which related to the lease equalisation fund was prejudicial to the interests of the revenue. But the proceedings for reassessment had nothing to do with the said head of income. The Supreme Court clearly held that the doctrine of merger was not attracted to a case of that nature. The Supreme Court followed its earlier judgment in CIT v. Sun Engg. Co. (P.) Ltd. [1992] 198 ITR 297 and held that the Tribunal had found that all the subsequent events were in respect of matters other than the lease equalisation fund. In other words, this was not a case where the subject-matter of the assessment and the reassessment was the same. The Supreme Court then held as follows :--
"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 his revisional 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 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 12 M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
assessment and not from the date on which the order reopening the reassessment has been passed.
9. Section 147 empowers the Assessing Officer, if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year to assess or reassess the said income and 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 the section. Explanation 3 which has been inserted by the Finance (No. 2) Act of 2009 with retrospective effect from 1-4- 1989 provides that for the purpose of assessment or reassessment under the section, the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment and such issue comes to his notice subsequently, in the course of the proceedings under the section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. The substantive part of section 147 empowers the Assessing Officer to assess or reassess the income chargeable to tax which has escaped assessment and any other income which comes to his notice subsequently in the course of proceedings under the section. The effect of Explanation 3 is to empower the Assessing Officer to assess or reassess the income in respect of any issue which comes to the notice in the course of the proceedings under the section, though the reasons which were recorded in the notice under section 148(2) did not contain reference to that issue.
10. The submission which has been urged on behalf of the revenue is that when several issues are dealt with in the original order of assessment and only one or more of them are dealt with in the order of reassessment passed after the assessment has been reopened, the remaining issues must be deemed to have been dealt with in the order of reassessment. Hence, it has been urged that the omission of the Assessing Officer, while making an order of reassessment to deal with those issues under section 143(3) read with section 147 constitutes an error which can be revised in exercise of the jurisdiction under section
263. The submission cannot be accepted either as a matter of first principle, based on a plain reading of the provisions of sections 147 and 263, nor is it sustainable in view of the law laid down by the Supreme Court. The Supreme Court has now clearly held in the decision in Alagendran Finance that the doctrine of merger does not 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 or more specific grounds and the reassessment is confined to one or more of those grounds, the original order of assessment would 13 M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
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 issue, it is open to him to make a reassessment on that issue as well as in respect of other issues which subsequently come to his notice during the course of the proceedings under section 147. The submission of the revenue is that by not passing an order of reassessment in respect of other independent issues, the order of the Assessing Officer can be construed to be erroneous and to be prejudicial to the interest of the revenue within the meaning of section 263. The submission cannot be accepted in the facts of the present case. 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 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 section 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 subject- matter of the reassessment, after the original assessment was reopened, the commencement of limitation would be with reference to the order of reassessment. The present case does not fall in that category."
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18. In the instant case also, the Ld Pr. CIT has sought to revise an issue which was allowed in the original assessment proceedings and which was not subject matter of reassessment proceedings. It can be noticed that the Hon'ble Bombay High Court has taken into consideration Explanation 3 to sec. 147 also, while holding that the issues concluded in the original assessment proceedings shall continue to be governed by the original assessment order and the principle of merger will not apply to those issues. It can be noticed that the Hon'ble Bombay High Court has followed the decision rendered by Hon'ble Supreme Court in the case of Alagendran Finance Ltd (2007)(293 ITR
1) in this regard.
19. The Hon'ble Bombay High Court has delivered yet another decision on the very same issue in the case of CIT vs. ICICI Bank Ltd (supra), wherein the decision rendered by Hon'ble Supreme Court in the case of Alagendran Finance Ltd (supra) and the decision rendered by it in the case of Ashoka Buildcon Ltd (supra) was followed. The Head notes relating to the case of ICICI Bank Ltd are extracted below:-
Facts :
An order of assessment was passed on 10-3-1999 under section 143(3). The deduction claimed under clauses (vii) and (viia) of section 36(1) and the foreign exchange rate difference was allowed. A notice was issued under section 148 on 21-10-1999 following which the first reassessment was carried out on 22-2- 2000 for reworking a deduction under section 80M. An appeal against the order under section 143(3) was decided by the Commissioner (Appeals) on 28- 3-2001. Thereafter a second notice was issued under section 148 on 28-3- 2001. Following that on 26-3-2002 a second order of reassessment was passed for reworking of the deduction under section 36(1)(viii). This order was set aside by the Tribunal on 27-8-2010 and an appeal was pending. On 28-3- 2003 an order was passed by the Commissioner under section 263 for disallowance under section 36(1)(vii), (viia) and in respect of foreign exchange rate difference. On further appeal, Tribunal held that order of the Commissioner dated 28-3-2003 passed under section 263 setting aside the assessment order dated 26-3-2002 passed under section 143 read with section 147 by the Assessing Officer was barred by limitation under section 263(2).
On revenue's appeal:
Held :15
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Sub-section (2) of section 263 stipulates a period of limitation of two years within an order under sub-section (1) has to be passed. Under sub-section (2) no order under section 263(1) can be made after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. The order of assessment under section 143(3) in the instant case allowed the deduction which was claimed under section 36(1)(vii ), and in respect of foreign exchange rate difference. Neither in the first order of reassessment dated 22-2-2000 nor in the second order of reassessment dated 26-3-2002 were these aspects determined. In other words on the aforesaid three issues, the original order of assessment dated 10-3-1999 passed under section 143(3) continued to hold the field. Once that is the position, then clearly the doctrine of merger would not apply. The order under section 143(3) passed on 10-3-1999 cannot stand merged with the orders of reassessment in respect of those issues which did not form the subject-matter of the reassessment. Consequently, Explanation 3 to section 147 will not alter that position. Explanation 3 only enables the Assessing Officer, once an assessment is reopened, to assess or reassess the income in respect of any issue, even an issue in respect of which no reasons were indicated in the notice under section 148(2). This, however, will not obviate the bar of limitation under section 263(2). Where the jurisdiction under section 263(1) is sought to be exercised with reference to an issue which is covered by the original order of assessment under section 143(3) and which does not form the subject- matter of the reassessment, as in the instant case, limitation must necessarily begin to run from the order under section 143(3). Before concluding it must also be taken note of that the second order of reassessment dated 26-3-2002 has been set aside by the Tribunal. An appeal against the order of the Tribunal is pending before this Court for admission. However, this appeal is considered independently and it is concluded that the invocation of the jurisdiction under section 263 was barred by limitation. [Para 7] CASE REVIEW :
CIT v. Alagendran Finance Ltd. [2007] 293 ITR 1 (SC) and Ashoka Buildcon Ltd. v. Asstt. CIT [2010] 325 ITR 574 (Bom.)followed & relied upon. CASES REFERRED TO :
CIT v. Alagendran Finance Ltd. [2007] 293 ITR 1 / 162 Taxman 465 (SC) (para
5) and Ashoka Buildcon Ltd. v. Asstt. CIT [2010] 325 ITR 574 / 191 Taxman 29 (Bom.) (para 7)."
20. The foregoing discussions would show that there is merit in the contentions of Ld A.R, i.e., since the issue of DRR sought to be revised by Ld Pr. CIT is covered by the original assessment order dated 30-12-2011, the time limit available to revise the original order is 31.3.2014, where as the Ld Pr. CIT has passed the impugned order on 26-03-2018. Hence we find merit in the 16 M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
contention of the assessee that the impugned revision order is barred by limitation.
21. On merits, the ld A.R submitted that the decision rendered by Hon'ble Bombay High Court in the case of Raymond Ltd (209 Taxmann 65) is binding on the tax authorities as well as the Tribunal. He submitted that the Hon'ble Bombay High Court in the above cited case has held that the Debenture Redemption Reserve is deductible in computation of book profit u/s 115JA of the Act. The Mumbai bench of Tribunal has followed the above said decision in the case of JSW Energy vs. ACIT (150 ITD 406), even though the Tribunal had made certain observations about the capital nature of Debenture Redemption Reserve. The Ld A.R submitted that the assessment order passed on the basis of binding decision of jurisdictional High Court cannot be termed as erroneous and prejudicial to the interests of revenue. In support of this proposition, the Ld A.R placed his reliance on the following case law:-
(a) CIT vs. Paul Brothers (1995)(216 ITR 548)(Bom)
(b) CIT vs. G.M.Mittal Stainless Steel (P) Ltd (2003)(263 ITR 255)(SC) The Ld A.R further submitted that the very fact that the issue relating to Debenture Redemption Reserve has reached to High Court would show that the issue is debatable one. He further submitted that, in any case, the view taken by the AO is a possible view and hence the Ld Pr. CIT is not entitled to revise the same.
22. The Ld D.R, on the contrary, submitted that the Ld Pr. CIT has taken the view that the decision rendered by jurisdictional High Court is per incurium, as the Hon'ble Bombay High Court has not considered that the appropriation of profit towards Debenture Redemption Reserve is on Capital account and hence not liable to be deducted for tax purposes. He further submitted that the AO has not discussed about the Debenture Redemption Reserve in the original assessment order as well as in the reassessment order. By placing 17 M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
reliance on the decision rendered by Hon'ble Karnataka high Court in the case of CIT vs. Infosys Technologies Ltd (2012)(17 taxmann.com 203), the Ld D.R submitted that non-discussion of the issue in the assessment order would make it erroneous and prejudicial to the interests of revenue. He further submitted that the Ld Pr. CIT has relied upon the decision rendered by Hon'ble Delhi High Court in the case of SREI Infrastructure Finance Ltd (supra), wherein it was held that the appropriation of profit out of reserve is not deductible while computing book profit.
23. In the rejoinder, the Ld A.R placed his reliance on the decision rendered by Hon'ble Bombay High Court in the case of Moil Ltd vs. CIT (2017)(396 ITR
244), where in it was held that if there is no discussion for allowability of the claim after making enquiry, order cannot be revised. The Ld A.R further submitted that the Hon'ble Delhi High Court did not deal with the appropriation for Debenture Redemption Reserve in the case of SREI Infrastructure Finance Ltd (supra) and it was dealing with general appropriation as per the statutory requirements. Hence the Ld Pr. CIT was not justified in placing reliance thereon.
24. We have heard rival contentions on this issue. There should not be any dispute that the decision rendered by the jurisdictional High Court is binding on all authorities below it. In the case of Raymond Ltd (supra), the Hon'ble Bombay High Court has held that the Debenture Redemption Reserve is an ascertained liability and is deductible from Net profit for the purpose of computing Book Profit u/s 115JA of the Act. The claim made by the assessee as well as allowed by the AO gets support from the decision rendered by the jurisdictional High Court. The Ld Pr. CIT has taken the view that the Hon'ble Bombay High Court has not considered the decision rendered by Hon'ble Supreme Court in the case of National Rayon corporation (227 ITR 764) in proper perspective and further observed that the Hon'ble Bombay High Court did not consider the fact that the Debenture Redemption Reserve operates in 18 M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
Capital field and hence appropriation of profit is not deductible for tax purposes. Accordingly, the Ld Pr. CIT has taken the view that the decision rendered by Hon'ble Bombay High Court is per incurium. Whatever may be the reasoning given by Ld Pr. CIT, it cannot be denied that the Ld Pr. CIT has taken different view in the matter, without noticing that the decision rendered by jurisdictional High Court is binding on him also. On the contrary, the claim made by the assessee as well as allowed by the AO gets support from the decision rendered by the jurisdictional High Court, meaning thereby, the AO has followed binding decision of the jurisdictional High Court, which cannot be found fault with.
25. It is well settled proposition of law that merely because the Ld Pr. CIT is holding a different view in the matter, the assessment order cannot be termed as erroneous and prejudicial to the interests of revenue, unless it is shown by him that the view taken by the AO is not in accordance with the law or against the binding precedents. In this regard, we may refer to the decision rendered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd (243 ITR 83). The relevant observations are extracted below:
"Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the 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, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be "erroneous in so far as it is prejudicial to the interests of the Revenue". This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that the section will be attracted". The Supreme Court held that an incorrect assumption of fact or an incorrect 19 M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression "prejudicial to the interests of the Revenue", the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) :
"The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law."
The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR
282."
In view of the above, the assessee's contentions have to succeed on merits also.
26. In view of the foregoing discussions, we hold that the impugned revision order for AY 2009-10 is barred by limitation and accordingly we quash the same. On merits also, we hold that the Ld Pr. CIT was not correct in law in initiating revision proceedings u/s 263 of the Act on the impugned issue. Accordingly his order is liable to be quashed on merits also.
27. We shall now take up the appeal filed for AY 2010-11. In this year also, the original assessment order was passed on 30-12-2011 u/s 143(3) of the Act. The AO reopened the assessment and passed the reassessment order on 28- 02-2017. The AO had reopened the assessment for examining the transactions entered between the assessee and Bhoomi Group. The Ld Pr. CIT initiated revision proceedings on 28-02-2018 in order to cancel the claim of deduction of amount appropriated for Debenture Redemption Reserve.
20M / s . H o us i n g De v e l o p m e n t a n d I nf r as t r u c tu r e L td .
28. It can be noticed that the facts prevailing in this year is identical with the facts pertaining to AY 2009-10. Hence the decision taken by us in AY 2009-10 both on limitation and on merits shall apply mutatis mutandis in this year also. Accordingly we quash the revision order passed by Ld Pr CIT for AY 2010-11 on the ground of limitation as well as on merits.
29. In the result, both the appeals of the assessee are allowed.
Order has been pronounced in the Court on 10.1.2019.
Sd/- Sd/-
(SANDEEP GOSAIN) (B.R.BASKARAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 10/01/2019
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT(A)
4. CIT
5. DR, ITAT, Mumbai
6. Guard File.
BY ORDER,
//True Copy//
(Senior Private Secretary)
PS ITAT, Mumbai