RAJ REAL ESTATE & FINVEST PRIVATE LIMITED,MUMBAI vs. PRINCIPAL CIT-5, MUMBAI

The aforesaid appeal has been filed by assessee against order dated 16.03.2022 passed by the Ld. PCIT, Mumbai-5 in his revisionary jurisdiction u/s 263 for A.Y. 2012-13.

The issue which has been raised before us is that the points which have been raised by the Ld. PCIT in his show cause notice and in his order is beyond the scope of reopening u/s 147 and therefore, the issue which were not subject of reopening, the period of limitation for revision would commence from the date of order of original assessment and not reassessment. In support of it, he strongly relied on the judgment of Hon’ble Jurisdictional High Court in the case of CIT vrs. Lark Chemical Ltd. (368 ITR 655) and also the decision of Coordinate Bench of ITAT in the case of Royal Western India Turf Club vs. PCIT (ITA No. 640/Mum/2021). Thus, the entire order of Ld PCIT u/s 263 is barred by limitation.

We have heard the rival submissions and also perused the relevant findings given in the impugned order as well as material placed on record. Here in this case, the assessment was reopened u/s 147 on the following reasons recorded:-

Thus, the entire scope of assessment was on the grounds raised

On perusal of the records, it is observed that set off of long term capital loss of Rs. (-)6083488/- has been wrongly allowed as the assessee has not offered any genuine evidences as per schedule Capital Gain in ITR. It has been transpired that such loss was engineered transaction with the sole purpose of tax evasion. 3.1 Audit scrutiny of Balance Sheet that during the year consideration, the assessee has shown Closing Stock of Finished Goods of Rs.10,23,000/-. The assessee vide their submission dated 27/11/2019 had stated that since the project was completed in 2010 and said closing stock were shown as unsold. Since, as per the above discussion, it may be evident that assessee project has been completed and the said inventory is in nature or Unsold Flats As per Hon’ble Delhi High court in the case of Ansal Housing wherein it was held that Annual Lettable Value (ALV) has to be determined in view of section 22 of IT Act for Inventory of unsold flats.

Therefore, it is clear that the assessment order passed u/s. 143(3) r.w.s. 147 of the IT Act dated 18.12.2019, is erroneous in so far as it is prejudicial to the interest of revenue, within the meaning Raj Real Estate & Finvest Pvt. Ltd. of Sec.263 of the Act. Hence, it is proposed to revise the aforesaid order u/s.263 of the Act. 9. In his impugned order u/s 263, Ld. PCIT has set aside the assessment order to examine these two issues only. Ostensibly, the issues, which have been raised in the show cause notice and have been discussed in the revisionary order, were neither the subject matter of reopening u/s 147 nor the issue on which assessment was sought to be reopened. Once the return income stands concluded either by way of intimation or later on by way scrutiny proceedings u/s 143(3), then it is said to be that assessment has been completed. If the return income has been accepted and no scrutiny has been done, then also it is treated as assessment has been completed and has attained finality. Such assessment can be reopened u/s 147, if AO has reason to believe based on any material or information coming on record that income chargeable to tax has escaped assessment. It is only on such reasons to believe and the issues raised in reasons recorded, AO can pass assessment order or re-assessment and it cannot travel beyond the reasons unless something tangible material comes on record during such assessment /reassessment proceedings. Here in this case, it is not Raj Real Estate & Finvest Pvt. Ltd. a case that AO has reopened assessment on account of any set off of long term capital loss or determination of ALV u/s 22 for the inventory unsold flats. Ld. PCIT in his revisionary jurisdiction u/s 263 cannot enlarge the scope of reopening u/s 147 and go beyond the reasons recorded. Here, the present order of the Ld. PCIT is on the issues which are beyond the scope of section 147 and therefore, he could not have roped in some other issues based on the figures given in the balance sheet or profit and loss account which already stood concluded and assessed way back in the year 2013.

The Hon’ble Jurisdictional High Court in CIT vrs. Lark Chemical Ltd. (368 ITR 655) on a similar situation and circumstances has held that notice u/s 263 cannot be issued beyond the period of 2 years from the date when order sought to be revised is passed and jurisdiction u/s 263 cannot be exercise with reference to the issue which were not subject matter of reopening of assessment and the period of limitation provided u/s 263(2) would commence from the date of order and not from the date of order of reassessment has been passed. The relevant observation and the finding of the Hon’ble Court reads as under:-

We have considered the rival submissions. It is not disputed that save and except the issue of non-genuine Purchases all other issues dealt with by the Commissioner of Income-tax in the order dated March 30, 2009, were not a subject matter of the assessment order passed on June 28, 2006, under section 143(3)/147 of the Act. All the other issues on which the Commissioner of Income-tax is seeking to exercise the jurisdiction under section 263 of the Act were concluded by virtue of an intimation under section 143(1) of the Act which admittedly was done beyond a period of two years prior to the notice dated March 17. 2009, issued under section 263 of the Act. Section 263(2) of the Act provides that the order would be made in exercise of the jurisdiction under section 263(1) of the Act after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. It is an admitted position that the Commissioner of Income-tax has not exercised the revisional jurisdiction in respect of the order/intimation passed section 143(1) of the Act within two years of it being passed. Therefore, exercise of jurisdiction on those issues under section 263 of the Act is time barred as held by this court in CIT v. Anderson Marine & Sons (P.) Ltd. [2004] 266 ITR 694/139 Taxman 16. Moreover, in view of the decision of the apex court in the matter of Alagendran Finance Ltd.'s case (supra) as well as our court in the matter of Ashoka Buildcon Ltd.'s case (supra) the jurisdiction under section 263 of the Act cannot be exercised on issues which were not subject matter of consideration while passing the order of reassessment Raj Real Estate & Finvest Pvt. Ltd. under section 143(3)7147 of the Act but a part of an assessment done earlier under the Act.

Thus, the aforesaid ratio and the principle laid down by the Hon’ble Jurisdictional High Court following the judgment of Hon’ble Supreme Court, is clearly applicable in the present case also, and not only that, Ld. PCIT has travelled beyond the scope of issues which were not subject matter of consideration in the re- assessment order which he cannot go beyond the reasons recorded and therefore the order of PCIT is barred by limitation. Thus, on this ground, we quashed the impugned order.