DCIT-3(1)(1), MUMBAI, AAYAKAR BHAWAN vs. SAHANA DWELLERS PRIVATE LIMITED, MUMBAI

Briefly stated, the assessee, a private limited company engaged in the business of construction of buildings, filed its return of income for the assessment year 2015-16 on 30.09.2015 declaring a loss of Rs.2,93,77,746/-. The return was selected for scrutiny and assessment under section 143(3) was originally completed on 28.12.2017. Thereafter, the assessment order was subjected to proceedings under section 263 of the Act on the ground that two issues had not been properly examined, namely, the alleged requirement of capitalization of proportionate interest expenditure of Rs.7.91 crores to capital work-in- progress and the alleged differential value of Rs.1.77 crores in respect of sale of flats. The learned Principal Commissioner of Income-tax, by order dated 10.03.2021 passed under section 263, set aside the assessment with a direction to the Assessing Officer to make detailed verification of the aforesaid issues and decide the same in accordance with law.

Pursuant to the aforesaid order under section 263, the Assessing Officer initiated proceedings and, after calling for details and examining the submissions of the assessee, passed an assessment order under section 144 r.w.s. 263 r.w.s. 144B dated 28.03.2022 without making any addition on the two issues. In the said order, the Assessing Officer specifically recorded that the contentions of the assessee had been verified and no variation was found, and accordingly the assessment was completed without making any addition.

However, simultaneously, proceedings under section 147 of the Act had been initiated on the same two issues and notice under section 148 was issued on 26.03.2021. In the reassessment proceedings, the Assessing Officer again examined the very same issues which had been considered in the proceedings under section 263. By order dated 29.03.2022 passed under section 147 r.w.s. 144 r.w.s. 144B, the Assessing Officer made an addition of Rs.1.77 crores on account of the alleged differential value of sale of flats and a further addition of Rs.7.91 2 crores on account of proportionate interest expenditure allegedly required to be capitalized to capital work-in-progress. The total income was consequently determined at Rs.6,74,22,254/- as against the returned loss of Rs.2,93,77,746/-.

The assessee challenged the validity of the reassessment proceedings as well as the additions before the learned CIT(A). It was, inter alia, contended that the very same issues had already been considered in proceedings under section 263 and that the Assessing Officer, after verification pursuant to the order under section 263, had passed an assessment order dated 28.03.2022 without making any addition. It was further contended that the reassessment order passed on the following day, i.e., 29.03.2022, on the very same issues was impermissible in law. The assessee also raised objections regarding the limitation prescribed under section 147, absence of failure on its part to disclose fully and truly all material facts, reliance upon material which was already available on record, and denial of adequate opportunity.

The learned CIT(A), after considering the material on record, accepted the principal legal contention of the assessee. The learned CIT(A) noted that the two issues forming the basis of the reassessment proceedings were precisely the same issues which had already been considered in the proceedings under section 263. It was further noted that the Assessing Officer, pursuant to the directions issued under section 263, had examined those issues and had completed the assessment on 28.03.2022 without making any addition. Despite this, the Assessing Officer proceeded, on the very next day, to pass another assessment order under section 147 r.w.s. 144 r.w.s. 144B on the identical issues and made additions aggregating to Rs.9.68 crores.

The learned CIT(A) observed that the Assessing Officer had thus, within a span of one day, passed two assessment orders for the same assessment year on identical issues, arriving at completely divergent conclusions. The first assessment order dated 28.03.2022, passed pursuant to the proceedings under section 263, recorded that the contentions of the assessee had been verified and no variation was found, whereas the reassessment order dated 29.03.2022 made additions of Rs.7.91 crores towards capital work-in-progress and Rs.1.77 crores towards differential value of sale of flats. The learned CIT(A) held that such contradictory action could not be sustained, particularly when the reassessment was founded upon the very issues which had already been the subject matter of the revisionary proceedings under section 263.

The learned CIT(A) further relied upon the judgment of the Hon’ble Bombay High Court in Sri Dilip Gangaram Patil, 172 taxmann.com 115 and held that, having regard to the statutory bar contained in the third proviso to section 147, where the issues forming the basis of reassessment proceedings had already been the subject matter of proceedings under section 263, the Assessing Officer could not again assume jurisdiction under section 147 in respect of those very issues. The learned CIT(A) accordingly concluded that the initiation of reassessment proceedings by issuance of notice under section 148 dated 26.03.2021 suffered from a fundamental jurisdictional infirmity and that the consequential reassessment order dated 29.03.2022 was invalid in law. The appeal of the assessee was accordingly fully allowed.

Before us, the Revenue has challenged the order of the learned CIT(A). We have considered the material placed on record and carefully examined the sequence of events. The undisputed factual position is that the original assessment for the year under consideration had been completed under section 143(3). Thereafter, the very same two issues, namely, capitalization of proportionate interest expenditure of Rs.7.91 crores to capital work-in-progress and the alleged differential value of Rs.1.77 crores in respect of sale of flats, were specifically identified in the proceedings under section 263. The order passed under section 263 directed the Assessing Officer to verify these very issues and complete the assessment in accordance with law.

It is equally undisputed that, in pursuance of the directions under section 263, the Assessing Officer examined the issues and passed an assessment order dated 28.03.2022 without making any addition. The assessment order itself records that the contentions of the assessee had been verified and no variation was found. Thus, the two issues which subsequently became the basis for the reassessment order dated 29.03.2022 had already been considered and dealt with by the Assessing Officer pursuant to the revisionary order under section 263.

In these circumstances, the action of the Assessing Officer in again invoking the reassessment jurisdiction under section 147 in respect of the identical issues cannot be sustained. The learned CIT(A) has correctly appreciated the statutory scheme and the effect of the third proviso to section 147 applicable to the facts of the present case. Once the very issues had been the subject matter of revision under section 263 and had thereafter been examined by the Assessing Officer in pursuance of the directions issued therein, the Assessing Officer could not assume jurisdiction under section 147 to reassess those very matters. The two proceedings cannot be permitted to operate simultaneously or successively in respect of the same subject matter in a manner which defeats the statutory demarcation between the revisionary jurisdiction under section 263 and the reassessment jurisdiction under section 147.

We also find considerable force in the observation of the learned CIT(A) that the action of the Assessing Officer resulted in two assessment orders being passed within a span of one day in respect of the same assessment year and on the very same issues, with diametrically opposite conclusions. On 28.03.2022, after verification pursuant to the order under section 263, the Assessing Officer found no variation and made no addition. On 29.03.2022, while exercising reassessment jurisdiction under section 147, the Assessing Officer treated the very same matters as having escaped assessment and made additions aggregating to Rs.9.68 crores. Such an approach cannot be accepted in the absence of lawful jurisdiction to undertake the second assessment on the identical subject matter.

The learned CIT(A) has also recorded a finding that the reasons for reopening were founded upon matters which had already formed part of the proceedings under section 263. The statutory scheme does not contemplate such overlapping assumption of jurisdiction. The object of the third proviso to section 147,as it existed prior to 01.04.2021, is to ensure that matters which have already fallen within the scope of revisionary proceedings under section 263 are not subjected to a parallel or subsequent reassessment under section 147. The reassessment proceedings in the present case, being directed against the very same issues which had already been considered in the proceedings under section 263, were therefore rightly held to be without jurisdiction.

Once the initiation of proceedings under section 147 itself is found to be invalid, the consequential additions made in the reassessment order cannot survive independently. Therefore, it is not necessary for us to examine the merits of the additions of Rs.7.91 crores and Rs.1.77 crores. The finding of the learned CIT(A) that the reassessment order dated 29.03.2022 is invalid and unsustainable in law consequently requires no interference.

We further note that the learned CIT(A) has dealt with the grounds relating to the validity of the reassessment proceedings and, having held the reassessment itself to be invalid, allowed the consequential grounds as well. The residuary ground was treated as dismissed. The Revenue has not brought before us any material or circumstance which would warrant interference with the findings recorded by the learned CIT(A). The findings are based upon the admitted chronology of the proceedings and the statutory position applicable thereto.

In view of the foregoing discussion, we find no infirmity in the impugned order of the learned CIT(A). The reassessment proceedings initiated under section 147 and the consequential assessment order dated 29.03.2022 having been correctly held to be invalid, the additions made therein cannot be sustained. Accordingly, the order of the learned CIT(A) is upheld.

In the result, the appeal filed by the Revenue is dismissed.