Gujarat High Court
Shree Siddhi Infrabuild Private ... vs Principle Commissioner Of Income Tax ... on 28 January, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/5619/2022 ORDER DATED: 28/01/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 5619 of 2022
With
CIVIL APPLICATION (FOR AMENDMENT) NO. 1 of 2025
In R/SPECIAL CIVIL APPLICATION NO. 5619 of 2022
With
R/SPECIAL CIVIL APPLICATION NO. 5621 of 2022
With
CIVIL APPLICATION (FOR AMENDMENT) NO. 1 of 2025
In R/SPECIAL CIVIL APPLICATION NO. 5621 of 2022
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SHREE SIDDHI INFRABUILD PRIVATE LIMITED
Versus
PRINCIPLE COMMISSIONER OF INCOME TAX AHMEDABAD 3 & ANR.
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Appearance:
MS SHRUNJAL T SHAH(10617) for the Petitioner(s) No. 1
MRS KALPANA K RAVAL(1046) for the Respondent(s) No. 2
MS MAITHILI D MEHTA(3206) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 28/01/2025
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) ORDER IN SPECIAL CIVIL APPLICATIONS :-
1. Rule returnable forthwith. Learned Senior Standing Counsel Ms.Maithili Mehta waives service of Rule for the respondent.
2. Having regard to the controversy in narrow compass arising in these petitions, with the consent of the learned advocates appearing for Page 1 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined the respective parties, the matters were taken up for hearing.
3. Heard learned advocate Ms.Shrunjal T.Shah for the petitioner and learned Senior Standing Counsel Ms.Maithili Mehta for the respondent.
4. By these two petitions under Articles 227 of the Constitution of India, the petitioner has challenged the order dated 30th March, 2021 passed by the respondent no.1 under Section 263 of the Income Tax Act 1961 (For short 'The Act) for Assessment Years 2012-13 and 2014-15.
5. The petitioner filed return of income for Assessment Year 2012-13 on 29/9/2012 declaring total income of Rs.2,82,34,740/-. The Assessing Officer passed Assessment Order under Section 143 (3) of the Act on 26-3-2015 accepting the return income as assessed income after complete scrutiny.
6. The petitioner filed return of income for Assessment Year 2014-15 on 31-12-2015 declaring total income of Rs.5,37,42,938/-. The Assessing Officer passed Assessment Order under Section 143 (3) of the Act on 19-12-2016 accepting the return income as the assessed income.
7. It is the case of the petitioner that Page 2 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined subsequently, because of the search in the Venus Group, notice for reopening under Section 148 of the Act was issued by the respondent no.1.
Thereafter, the Assessment Order was passed under Section 143 (3) read with Section 147 of the Act by making addition of Rs.7.50 crore for Assessment Year 2013-14 and for Rs. 3 crore for Assessment Year 2014-15 under Section 68 of the Act by order dated 29-12-2017.
8. It appears that the petitioner filed appeal before the CIT (Appeals) against the additions made by the Assessing Officer in re-assessment proceedings. The CIT (Appeals), by order dated 22/8/2019, deleted the additions. Being aggrieved, the petitioner has preferred the appeals before the Income Tax Appellate Tribunal, which are pending for adjudication. The respondent no.1 - The Principal Commissioner of Income Tax issued show-cause notices dated 19th March 2021 for both the years to the petitioner to show cause as to why the order dated 29-12- 2017 passed under Section 143 (3) read with Section 147 of the Act, is not erroneous in so far as it is prejudicial to the interest of revenue under Section 263 of the Act and why disallowance under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 should Page 3 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined not be made.
9. The petitioner filed reply dated 23rd March, 2021 contending inter-alia that the show-cause notice is beyond the period of limitation from the date of the Assessment Order passed under Section 143 (3) of the Act as the issue of disallowance under Section 14A of the Act was already processed by the Assessing Officer in the regular assessment proceedings. It was further contended that the assuming for a while that the impugned show-cause notice was within the period of limitation, the CIT (Appeals) - the respondent no.1 could not have assumed the jurisdiction under Section 263 of the Act as it would amount to mere change of opinion. It was also contended that against the order passed by the Assessing Officer, the petitioner had preferred an appeal before the CIT (Appeals) and as such, the Assessment Order has merged with the order of the CIT (Appeals), more particularly when the order of the CIT (Appeals) is prior in point of time.
10. However, the respondent no.1 passed the impugned orders dated 29th December, 2017 and dated 30th March, 2021 holding that the Assessment Orders under Section 143 (3) of the Act read with Section 147 of the Act dated 29th December, 2017 passed by the Assessing Officer is erroneous so Page 4 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined far as it is prejudicial to the interest of the revenue as per the explanation 2 of Section 263 (1) of the Act as the said Assessment Order was passed without making inquiries or verification, which would have been made in respect of disallowance under Section 14A of the Act read with Rule 8D of the Rules as prescribed.
11. The petitioner preferred the appeals challenging the impugned order under section 263 before the tribunal. The petitioner, thereafter, has preferred these petitions on receipt of the notice dated 5/3/2022 issued under Section 142 (1) of the Act for making fresh assessment pursuant to the order passed under Section 263 of the Act as the assessment was getting time barred on 31/3/2022.
12. It is the case of the petitioner that the petitioner has withdrawn the appeals filed before the tribunal and the petitioner is desirous to pursue these petitions.
13. Learned advocate Ms.S.T.Shah submitted that the respondent no.1 should not have assumed the jurisdiction to issue the notice under Section 263 of the Act as the Assessing Officer at the time of regular assessment proceedings has called for the details while issuing the notice under Page 5 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined Section 142 (1) regarding the exempt income and working of disallowance under Section 14A of the Act read with Rule 8D of the Income Tax Rules.
14. Learned advocate Ms.Shrunjal T.Shah for the petitioner invited the attention of the Court to the said notice to point out that the petitioner has furnished the reply in relation to point no.22 during the course of the regular assessment for Assessment Year 2012-13 and similar reply was also filed during the assessment proceedings for the Assessment Year 2014-15. It was also submitted that the petitioner had submitted before the Assessing Officer during the course of the regular assessment with regard to the investment made in the partnership firms / LLP and also disclosed that the petitioner received share of profit from Shiv Siddhi Corporation, which is exempt under Section 10 (2) of the Act and no expenditure was claimed by the petitioner and therefore, the question of disallowance does not arise.
15. It was further submitted that the respondent could not have assumed the jurisdiction for issuing the impugned show-cause notice and passing the order under Section 263 of the Act on the issue of disallowance under Section 14A read with Rule 8D of the Rules in view of the fact Page 6 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined that the said issue was already processed during the regular course of assessment and therefore, it has achieved the finality as the Assessing Officer accepted the return income without making any disallowance for the same. It was therefore submitted that during the course of re-assessment proceedings, the respondent - Assessing Officer could not have made any inquiry with regard to disallowance under Section 14A of the Act as the re-assessment proceedings were confined only to disallowance on the basis of the materials seized during the course of search in Venus Group. In support of her submissions, reliance was placed on the decision of CIT Chennai vs Alagendran Finance Limited, reported in (2007), 162 Taxman 465 SC. Reliance was also placed on the decision of the Hon'ble Madras High Court in case of Indira Industries versus PCIT reported in (2018) 95 Taxman.com 103 (Madras) and decision of this Court in case of Commissioner of Income Tax. vs Nirma Chemicals Works (P) Limited reported in (2009) 182 Taxman 183 (Gujarat) and the decision of Delhi High Court in case of Commissioner of Income Tax, Delhi - 1 vs Bharti Airtel Limited reported in (2013) 37 Taxmann.com 218 (Delhi) Referring to the above decisions, it was submitted that that the Hon'ble Apex Court in case of Alagendran Finance Limited (supra) has in Page 7 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined similar facts held that the Income Tax Commissioner - the respondent no.1 could not have exercised the revisional jurisdiction only in relation to the issue of disallowance under Section 14A of the Act as the same was not subject of the reassessment proceedings and therefore, the period of limitation provided under sub-Section (2) of Section 263 of the Act would begin to run from the date of the order of assessment passed under Section 143 (3) of the Act and not from the order of re-assessment passed under Section 143 read with Section 147 of the Act.
16. It was further submitted that this Court in case of Nirma Chemicals Works Private Limited has held that the Assessing Officer is not required to record reasons for granting a claim of deduction or for making any disallowance in the Assessment Order as it would be an impossible burden on Assessing Officer considering the workload that he carries and period of limitation within which an order is required to be made. It was therefore submitted that only because the Assessing Officer has not recorded as to why the disallowance under Section 14A is not made by him after making inquiries as in the notice issued under Section 142(1) of the Act, the issue with Page 8 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined regard to disallowance under Section 14A could not have been again considered by the Assessing Officer while in the re-assessment proceedings and therefore, the respondent no.1 could not have assumed the jurisdiction to revise the re- assessment order by invoking provision of Section 263 of the Act. In the alternative, learned advocate Ms.Shrunjal T.Shah submitted that assuming that the impugned show-cause notice and the order are not hit by the limitation then also the respondent no.1 could not have assumed the jurisdiction as it would amount to mere change of opinion as once the Assessing Officer has already processed the issue of disallowance under Section 14A of the Act, the respondent no.1 could not have assumed the jurisdiction on the ground that the insufficient inquiries are made by the Assessing Officer.
17. It was further submitted that the impugned order dated 29-12-2017 passed under Section 143 (3) read with Section 147 of the Act was only confined to the addition of Rs.7.5 crores in Assessment Year 2012-13 and Rs.3 crores in Assessment Year 2014-15 and in both the years, the petitioner preferred an appeal before the CIT (Appeals) and therefore, as per the provision of principles of doctrine of merger, both the Page 9 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined Assessment Orders for both the years would be merged into the order of CIT (Appeals), which was passed on 30th October, 2019, whereby the addition made was deleted.
18. It was further submitted that when the re- assessment order is not in existence, the respondent no.1 could not have assumed the jurisdiction to pass an order under Section 263 of the Act for revision of the same.
19. On the other hand, learned Senior Standing Counsel Ms.Maithili Mehta for the respondent submitted that the respondent no.1 assumed the jurisdiction under Section 263 of the Act as the respondent - Assessing Officer has not made any inquiry regarding the disallowance under Section 263 of the Act while passing the re-assessment order.
20. Learned Senior Standing Counsel Ms.Maithili Mehta, in support of her submissions, referred to and relied upon the averments made in the affidavit-in-reply filed on behalf of the respondents.
21. It was further submitted that during the course of re-assessment proceedings, the Assessing Officer was required to consider all Page 10 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined the issues other than which are forming a part of the reasons recorded for reopening.
22. It was therefore incumbent upon the Assessing Officer to make inquiries with regard to the disallowance under Section 14A of the Act at the time of having the assessment. With regard to the contention raised on behalf of the petitioner that during the course of the regular assessment, the inquiries were made by the Assessing Officer, reliance was placed on the observation made in the impugned order of the respondent no.1, wherein it was observed as under
:-
"7. The assessee has contended that the issue w/s.14A had already been examined in the original assessment proceedings and therefore, the order cannot be termed as erroneous and prejudicial to the interest of the revenue, warranting invocation of proceedings u/s. 263. However, in the instant case, it is seen that neither in the original assessment proceedings nor in the reassessment proceedings, the Assessing Officer has verified any facts pertaining to the exempt income earned during the year under consideration and its relation to the disallowance in accordance with the sec.14A Page 11 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined r.w. rule 8D and therefore never examined the issue involved on these facts. Such lack of enquiry/verification makes the assessment order erroneous and prejudicial to the interest of revenue. There is no evidence on record that any inquiry was carried out by the Assessing Officer in respect of investments In the Firm/LLP and exempt income earned there from for the purpose of working of disallowance u/s.14A r.w. rule 8D. It is for the Assessing Officer to collect the facts, give an opportunity to the assessee, examine whether the disallowance was required to be made u/s.14A rw. Rule 8D and to apply the correct position of law thereafter. There is absolute failure on the part of the Assessing Officer in this regard and it is such failure which calls for revision of the assessment order u/s.263 of the Act. The present case is squarely covered by the decision of the Hon'ble Supreme Court of India in the case of Deniel Merchants Pvt.Ltd. vs. ITO (Appeal No.2396/2017) dtd.29.11.2017, wherein the Hon'ble Supreme Court of India has dismissed the SLPs in cases where Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of Page 12 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined the assessee(s) in so far as receipt of share application money is concerned."
23. Referring to the above observations, it was submitted that the respondent no.1 has already considered the aspect of proposed disallowance under Section 14A of the Act and has categorically held that the issue was never examined by the Assessing Officer and upon lack of such inquiry / verification, the Assessment Order becomes erroneous and prejudicial to the interest of revenue.
24. It was therefore submitted that no interference is called for while exercising extraordinary jurisdiction under Article 227 of the Constitution of India.
25. Having heard the learned advocates for the respective parties and considering the facts of the case as well as the impugned show-cause notices and orders passed by the respondent authorities, it is not in dispute that during the course of the regular assessment carried out under Section 143(3) of the Act, the queries were raised with regard to the issue of disallowance under Section 140 of the Act with Rule 8D of the Rules and the petitioner was called upon to furnish the details of expenses claimed in Page 13 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined respect of any exempt income, working of disallowance under Section 14A of the Act and the petitioner has furnished such information in the reply filed during the course of the assessment proceeding.
26. Therefore, it appears that during the course of the regular assessment, the Assessing Officer has accepted the explanation and reply filed by the petitioner and the return income was accepted.
27. This Court in case of Nirma Chemicals Pvt. Ltd while considering the deduction under Section 80 I of the Act vis-a-vis the revisional powers of the Commissioner under Section 126 of the Act, has held as under :-
"20. The stand of the revenue that the assessment order was silent as regards eligibility or otherwise of Section 80I of the Act cannot thus be accepted. As noted hereinbefore the entire Section lays down a complete codified scheme in itself for deciding not only the eligibility but also for the computation of the relief to which the assessee is entitled. When the Section talks of profits and gains derived from an industrial undertaking the requirement is in relation to the industrial undertaking to Page 14 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined which the Section applies and which fulfills all the conditions laid down in Sub-section (2) of Section 80I of the Act. It is not possible to read the provisions in any other manner whatsoever. Hence, the contention that the eligibility or otherwise under Section. 80I of the Act was never the subject matter of Appeal requires to be rejected. The Tribunal thus committed an error in law in coming to the conclusion that the prohibition imposed by Explanation
(c) to Section 263 of the Act would not be applicable.
21. In fact, the Tribunal's order on this count does not discuss as to why and how Explanation (c) to Section 263 of the Act does not apply in the facts of the present case. The order only records 89. Considering the rival submissions and the case law cited before us we are of the view that the decision relied upon by the assessee is not applicable to the instant case. To say that the direction of the CIT (A) to recompute the relief under the head 80-I amounts to consideration of the fact on eligibility is nor correct. So assessee pleas on lack of jurisdiction under Section 263 are rejected.Page 15 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025
NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined One would expect that a preliminary issue as regards jurisdiction would have merited better consideration at the hands of the Tribunal.
22. The contention on behalf of the revenue that the assessment order does not reflect any application of mind as to eligibility or otherwise under Section 80-I of the Act requires to be noted to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, Secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with."
28. In view of the above, the Assessing Officer was not required to record any reason for not making any disallowance under Section 14A of the Act while passing the Assessment Order.
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29. The Hon'ble Apex Court, in the case of Alagendran Finance Limited (supra), after considering the decision in the case of CIT Vs. Sun Engineering Works Pvt Ltd. reported in (1992)198 ITR 297 (SC) and the decision of the Apex Court in case of Hind Wires Industries Limited versus CIT reported in 1995 212 ITR 639 has held as under :-
"12. We may at this juncture also take note of the fact that even 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.
13. It may be of some interest to notice that a similar contention raised at the instance of an assessee was rejected by a 3-Judge Bench of this Court in Commissioner of Income-Tax v. Shri Arbuda Mills Ltd. [231 ITR 50]. This Court took note of the amendment made in Section 263 of the Act by Page 17 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined the Finance Act, 1989 with retrospective effect from June 1, 1988, inserting Explanation (c) to Sub-section (1) of Section 263 of the Act stating:
"The consequence of the said amendment made with retrospective effect is that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under section 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. This is sufficient to answer the question which has been referred."
We, therefore, are clearly of the opinion that in a case of this nature, the doctrine of merger will have no application.
14. The Madras High Court in A.K. Thanga Pillai (supra), in our opinion, has rightly considered the matter albeit under Section Page 18 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined 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 underassessment are also treated as instances of escaped assessment.
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already made in respect of items which are not required to be reopened, as also matters which are required to be dealt with in order to bring what had escaped in the earlier order of assessment, to assessment. An assessee who has failed to file an appeal against the original order of assessment cannot utilise the reassessment proceedings as an occasion for seeking revision or review of what had been assessed earlier. He may only question the extent of the reassessment in so far as the escaped assessment is concerned.
The Revenue is similarly
bound..."(p.263)
The same principle was reiterated by a Division Bench of the Calcutta High Court in Commissioner of Income-Tax v. Kanubhai Engineers (P.) Ltd. [241 ITR 665].
15. We, therefore, are clearly of the opinion that keeping in view the facts and Page 20 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined circumstances of this case and, in particular, having regard to the fact that the Commissioner of Income Tax exercising its revisional jurisdiction reopened the order of assessment only in relation to lease equalization fund which being not the subject of the reassessment proceedings, the period of limitation provided for under Sub- section (2) of Section 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus, been invoked by the Commissioner of Income Tax beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity."
30. The aforesaid decision of the Apex Court was considered by the different High Courts including this Court to hold that the revisional powers under Section 263 of the Act would be available from the date of limitation for exercise of powers under Section 263 of the Act would be from the date of the Assessment Order under Section 143 (3) of the Act when the issue sought to be revised are already considered during the regular assessment proceedings.
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31. The Hon'ble Madras High Court in case of Indira Industries vs Principal Commissioner of Income Tax reported in (2018) 95 Taxmann.com 103 (Madras) in similar facts has held as under :-
"3(xv) We are unable to agree. We are unable to agree as Paragraph 15 of the Alagendran Finance case makes it clear that when a notice under Section 263 raises new issues, which are not subject matter of the re-assessment proceedings, then the two year period contemplated under Sub-section (2) of Section 263 would begin to run from the date of assessment and not from the date of re-assessment. In other words, the ratio laid down in Alagendran Finance case, particularly as elucidated in Paragraph 15 of the Alagendran Finance case, is to the effect that the two year limitation period stipulated under Section 263(2) will run from the date of assessment only and not from the date of re-assessment when the Section 263 notice does not deal with the same subject as in assessment and when it deals with other issues which are not subject matter of reassessment proceedings.
3(xvi) In the instant case, we have already noticed that while the original issue (in Page 22 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined the reassessment proceedings) was with regard to disallowance of interest paid by the Assessee, as the loan amount has been diverted to the partners, the issue now raised in the impugned notice under Section 263 is not restricted to the disallowance of interest on loan alone. It deals with other aspects such as claims of the assessee regarding administrative, selling and distribution expenses made by the Assessee to the tune of Rs.3.23 crores and claim of bad debts written off to the tune of Rs.33.06 lakhs etc., 3(xvii) Therefore, as the impugned notice deals with several issues other than the one raised earlier, the limitation period in the instant case has to necessarily run from 31.3.2015 being the end of the financial year as 25.02.2015 is the date on which the scrutiny assessment was admittedly made for the Assessee under Section 143 (3) of the IT Act.
3(xviii) We therefore have no hesitation in holding that the reckoning date qua the impugned notice for the purpose of Section 263(2) of IT Act is not the date of re- assessment being 30.12.2016, but the date Page 23 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined of scrutinizing the assessment i.e, 25.02.2015.
3(xix) As would be evident from the narration of facts and discussion supra, the impugned notice is dated 16.08.2017 and is therefore, clearly beyond two years when reckoned from 25.02.2015.
3(xx) Therefore, the Assessee before us was clearly entitled to succeed on the second point raised before the learned single Judge. To be noted, we have already negatived the first point regarding 'Change of Opinion'.
3(xxi) Learned Senior Standing Counsel for Revenue pressed into service MAK Data P. Ltd. Vs. Commissioner of Income Tax [(2013) 358 ITR 593 (SC)] to say that even agreed basis orders can be revisited and Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax [(2000) 243 ITR 83 (SC)] to say that Revenue in exercise of powers under Section 263 of IT Act can travel beyond the assessing officer in cases of non- application of mind. MAK Data Systems case deals with penalty under Section 271 (1)
(c) of IT Act which operates in a different realm and Malabar Industrial Co. Ltd., does Page 24 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined not rescue the Revenue as impugned notice is hit by the vice of lack of jurisdiction on account of being time barred.
3(xxii) One other reason given by the learned single Judge for dismissing the Assessee's writ petition is that the impugned notice is a show-cause notice and therefore, no harm would be caused to the Assessee.
3(xxiii) The principles and the grounds available for assailing a show-cause notice are now well settled. If the authority issuing the show-cause notice lacks jurisdiction and if it is clearly barred by law, it certainly renders the show-cause notice invalid in law. In the instant case, owing to all that have been stated supra, as the impugned notice, though is a show- cause notice as noticed by the learned single Judge, is invalid, as it has been issued beyond two years from the reckoning date and is clearly hit by Sub-section (2) of Section 263. In other words, the impugned notice is hit by the vice of lack of jurisdiction. Therefore, the assessee is entitled to succeed in its challenge to the impugned notice.
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4.CONCLUSION Owing to all that have been stated supra, impugned notice issued by the Revenue dated 16.08.2017 bearing Reference C.No.852(5)/PCIT-8/2017-18 is set aside as being hit by limitation prescribed by sub- section (2) of Section 263 of the IT Act."
32. It is true that against the order passed under Section 263 of the Act, an appeal would lie before the tribunal. In the facts of the case, the petitioner had preferred an appeal before the tribunal. However, the petitioner has chosen to withdraw such appeal and preferred to pursue the writ-petitions filed before this Court. The Hon'ble Supreme Court in case of SJS Business Enterprises Link Pvt. Ltd. vs. State of Bihar and others reported in (2004) 7 SCC 166, which was relied upon by the petitioner for pursuing these petitions has held as under :-
"12. The petitioner had thus obtained the rule and the interim order dated 9-4-2002, by suppressing a most vital fact, namely, pendency of the suit and the order dated 8- 4-2002 passed thereon. The petitioner's conduct verges on fraud. The petitioner has, therefore, disentitled itself from any relief in the extraordinary prerogative writ Page 26 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined jurisdiction.
13. Learned Counsel for respondent No. 2 is right in his submission that the petitioner has been a chronic defaulter and had paid a mere sum of Rs. 14.23 lacs till the institution of this writ petition, whereafter it deposited on 20-4-2002 a sum of ten lacs under the orders of this Court. Therefore, it has rightly been contended on behalf of respondent No. 2 that it acted with forbearance and gave more than sufficient opportunity to repay the debts. The petitioner owed a sum of Rs. 191.30 lacs as on 31-3-2002, as is manifest from the aforesaid notice dated 31-3-2002 (Annexure-
7). This Court has no means to verify whether that sale of the unit for rupees one crore was the best possible offer or not, but a few facts are manifest which establish the bona fides of respondent No. 2. It was sold on the basis of a widely published advertisement. Respondent No. 2 had not sold the unit for Rs. 41 lacs on an earlier occasion, has been sold for rupees one crore on this occasion, and the entire amount was deposited simultaneously, which is in contra-distinction to the track-record of Page 27 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined the petitioner to the effect that it had paid a total sum of Rs. 14.23 lacs until the institution of the writ petition. Learned Counsel for respondent No. 2 has rightly relied on the judgment of the Supreme Court in Haryana State Financial Corporation v.
Jagdamba Oils Mills (supra), wherein it has been observed, quoting from the classic judgment of Lord Greene, M.R. in Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, reported in 1947. Vol. 2, All Eng. L.R. page 680, the Court cannot substitute its judgment for action of the administrative authority unless it is so unfair or unreasonable that no reasonable person would have taken that action. The Supreme Court has observed in paragraph 15 of the judgment that the view expressed in Gem Cap case [(1993)2 SCC 299], appears to be more in line with the legislative intent. Indulgence shown to chronic defaulter would amount to flogging a dead horse without any conceivable result being expected. It is one thing to assist the borrower who has intention to repay, but is prevented by insurmountable difficulties in meeting the commitment. The judgment of the Supreme Court in Mahesh Chandra case [(1993)2 SCC Page 28 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined 279] has been expressly over-ruled by this judgment. I am thus of the view that respondent No. 2 acted in a bona fide manner and, in its commercial discretion, rightly decided to sell the unit in favour of respondent No. 6.
14. It has rightly been contended on behalf of the respondents that on the own showing of the petitioner, respondent No. 2 had made the offer to the petitioner to retain the assets of the unit on matching terms and conditions which is manifest from the aforesaid communication dated 31-3-2002 (Annexure-7), from respondent No. 2 to the petitioner, the relevant portion of which is set out hereinbelow for the facility of quick reference :
"The bidders presents and bidding had offered Rs. 95.50 lacs after negotiations and agreed to increase of Rs. 1.00 crore (Rupees One Crore) to be paid in one installment.
"Further take notice that this offer to purchase the said hotel as received by BICICO is being communicated with an offer to you to accept the same on the same terms and conditions. If this offer is acceptable Page 29 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined to you, you are requested to give your acceptance alongwith Demand Drafts/Cheques for the above noted amount within 10 days of issue of this letter."
Learned Counsel for the petitioner is, therefore, not right in his submission that the offer to retain the assets was made belatedly by letter dated 26-7-2002 (Annexure 'A' to the supplementary counter- affidavit of respondent No. 2). It appears to me on a plain reading of this letter that the same was really with respect to the petitioner's request for one time settlement. In any view of the matter, the officer had been promptly made by the aforesaid letter dated 31-3-2002 (Annexure-
7).
15. Learned Counsel for the petitioner next submits that respondent No. 2 is failing in its statutory duty to support the petitioner unit. He relies on the judgment of the Supreme Court in Gujarat State Financial Corporation v. Lotus Hotel Pvt. Ltd. (supra) and places reliance on the following observations of the judgment:
"How a public sector corporation set up to give impetus to industrial development of Page 30 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined the country, a promise of planned economy aimed at job expansion to liquidate the curse of unemployment, and larger production helping price stabilisation acts in a manner contrary to its raison d'etre and becomes counterproductive is aptly illustrated by the facts of this case."
The reliance has been placed on these observations in a manner Completely torn out of the context. That writ petition was for the arbitrary refusal to release the sanctioned loan amount by the State Financial Corporation to the entrepreneur who had already acted on the basis of the sanction, incurred expenditure and liabilities. Therefore, the Court allowed the writ petition by applying the doctrine of promissory estoppel, The judgment is an authority for application of the principle of promissory estoppel. On the other hand, in the present case, it is a case of recovery in terms of Section 29 of the Act after the borrower had been given sufficient time to repay, and was after auction promptly given the offer to retain the assets on matching terms and conditions. The judgment in Gujarat State Financial Page 31 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined Corporation v. Lotus Hotel Pvt. Ltd., (supra) is, therefore, wholly irrelevant in the present context. The judgment of this Court in Om Flour Mills v. State of Bihar (supra) is inapplicable for the same reasons."
33. In view of the above dictum of law, these petitions are entertained vis-a-vis the grievance raised by the petitioner as to the effect that the respondent no.1 would not have assumed the jurisdiction to issue the show-cause notice under Section 263 of the Act and thereafter, passed an order.
34. Considering the facts of the case as well as the settled legal position as enumerated herein above, the following issues arising in these petitions vis-a-vis the jurisdiction of the respondent no.1 can be summarized as under :-
(i) The respondent no.1 could not have assumed the jurisdiction only when the Assessing Officer has not made any inquiry with regard to any issue, which is the subject matter of the revision proceedings.
In the facts of the case, it is not in dispute that the Assessing Officer has made inquiries with regard to disallowance under Page 32 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined Section 14 A of the Act read with Rule 8D of the Rules during the course of the regular assessment. Therefore, the Assessing Officer while carrying out the re-assessment proceedings could not have again made any inquiry for the said issue.
(ii) Moreover, the order passed in the re- assessment proceedings was subject matter of Appeal before the CIT (Appeals) and therefore, as per the principle of merger, the order passed in the re-assessment proceedings has already merged. Moreover, assuming the contention of the petitioner that irrespective of the issue of limitation, the respondent no.1 - Assessing Officer could not have assumed the jurisdiction by invoking explanation (ii) of Section 263 is also tenable as the issue of disallowance under Section 14A of the Act was already subject matter of inquiry and therefore, the issue as to whether the inquiry was insufficient or not, could not have been the subject matter of revisional proceedings as it would amount to mere change of opinion.
35. Therefore, on all the above issues, the impugned show-cause notices and impugned orders Page 33 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025 NEUTRAL CITATION C/SCA/5619/2022 ORDER DATED: 28/01/2025 undefined cannot be sustained. The petitions therefore succeed and are accordingly allowed. The impugned notices and impugned orders are hereby quashed and set-aside. Rule is made to the aforesaid extent. No order as to costs.
ORDER IN CIVIL APPLICATIONS (For Amendment) :-
These applications are filed for amendment of the petitions. The same are allowed in terms of para 4 of the applications. To be carried out forthwith.
Present Civil Applications are disposed of accordingly.
(BHARGAV D. KARIA, J) (D.N.RAY,J) MOHMMEDSHAHID Page 34 of 34 Uploaded by MOHMMEDSHAHID(HC01113) on Thu Feb 06 2025 Downloaded on : Fri Feb 07 23:35:08 IST 2025