HINDUSTAN CONSTRUCTION COMPANY,MUMBAI vs. PR. CIT-6, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI SHRI PRAMOD KUMAR, VICE PRESIDENT SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 969/MUM/2021 (ASSESSMENT YEAR: 2011-12) Hindustan Construction Company Limited, Hincon House, L B S Marg, Vikhroli (West), Mumbai - 400083 [PAN: AAACH0968B] …………… Appellant PCIT -6, Mumbai, Vs Room No. 501, 5th Floor, Aayakar Bhavan, Maharishi Karve Road, ……………… Respondent Mumbai - 400020 Appearances For the Appellant/Assessee : Shri H. P. Mahajani For the Respondent/Department : Shri Mehul Jain Date of conclusion of hearing : 27.05.2022 Date of pronouncement of order : 25.08.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 30.03.2021, passed by the Ld. Principal Commissioner of Income Tax, Mumbai - 6, [hereinafter referred to as „the PCIT‟] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟] whereby the Assessment Order, dated 31.03.2015, passed under Section 143(3) of the Act has been set-aside.

ITA No. 969/Mum/2021 Assessment Years: 2011-12 “1. On the facts and in the circumstances of the case and in law the order passed by the learned PCIT is barred by limitation and is thus ab initio bad in law and needs to be annulled. 2. On the facts and in the circumstances of the case and in law, assumption of jurisdiction by the learned PCIT, is even otherwise ab initio bad in law and hence the order passed by him u/s 263 of the Act needs to be annulled. 3. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the learned PCIT erred in taking a view that a sum of Rs. 8,42,46,581 being share of loss from partnership was required to be added to book profits for the purposes of s 115JB of the Income Tax Act 1961. 4. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the learned PCIT erred in taking a view that a sum of Rs. 4,04,96,607/- being Dispute claims realized was required to be added to book profits for the purposes of s 115JB of the Income Tax Act 1961. 5. The order passed by the learned CIT merits being annulled. 6. The Appellant reserves the right to add to, alter or delete any of the grounds taken hereinabove.” 3. The relevant facts, in brief, are that the Appellant, a company engaged in the business of civil construction, filed return of income for the Assessment Year 2011-12 on 30.11.2011 declaring total income at Nil (after set off of brought forward losses to the extent of Gross Total Income) under the provisions of the Act, and computed book profits at INR 109,32,61,165/-, under the provision of Section 115JB of the Act.

ITA No. 969/Mum/2021 Assessment Years: 2011-12 66,39,90,746/- under normal provisions of the Act. The Assessing Officer computed book profits under Section 115JB of the Act at INR 115,29,16,865/-.

ITA No. 969/Mum/2021 Assessment Years: 2011-12 sought to revise order dated 24.12.2018 passed under Section 143(3) read with Section 147 of the Act, in effect the PCIT has sought to revise the original assessment order, dated 31.03.2015, as the issues on the basis of which the PCIT has exercised powers under Section 263 of the Act were not subject matter of reassessment proceedings. In identical facts and circumstances, the Hon‟ble Supreme Court in the case of CIT vs. Alagendran Finance Ltd: (2007) 293 ITR 1 (SC) and the Hon‟ble Bombay High Court in the case of Ashoka Buildcon Ltd. vs. CIT: 325 ITR 574 (Bombay) have set aside the revisional order passed under Section 263 of the Act holding the same to be barred by limitation prescribed in terms of Section 263(2) of the Act.

ITA No. 969/Mum/2021 Assessment Years: 2011-12 facts and circumstances of the present case, the issue that arises for consideration is that whether the period of limitation specified in Section 263(2) of the Act would start running from the date of original assessment order (i.e. 31.03.2015) or the date of reassessment order (i.e. 24.12.2018).

ITA No. 969/Mum/2021 Assessment Years: 2011-12 relevant extract of the above judgment of the Hon‟ble Supreme Court reads as under:

“9. We may at this juncture also notice the decision of this Court in Hind Wire Industries Ltd.'s case (supra) wherein the decision of this Court in V. Jaganmohan Rao v. CIT/CEPT [1970] 75 ITR 373 interpreting the provisions of section 34 of the Act was reproduced which reads as under: "'Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment, he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22, the previous underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b), the Income-tax Officer had not only the jurisdiction, but it was his duty to levy tax on the entire income that had escaped assessment during that year'." (p. 643) 10. There may not be any doubt or dispute that once an order of assessment is reopened, the previous underassessment will be held to be set aside and the whole proceedings would start afresh but the same would not mean that even when the subject-matter of reassessment is distinct and different, the entire proceeding of assessment would be deemed to have been reopened. 11. In Sun Engg. Works (P.) Ltd.'s case (supra) also, V. Jaganmohan Rao's case (supra) was noticed stating: "The principle laid down by this Court in Jaganmohan Rao's case, therefore, is only to the extent that once an assessment is validly reopened by issuance of a notice under section 22(2) of the 1922 Act (corresponding to section 148 of the Act) the previous under assessment is set aside and the ITO has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. . . The judgment in V. Jaganmohan Rao's case, therefore, cannot be read to

ITA No. 969/Mum/2021 Assessment Years: 2011-12 imply as laying down that in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings, it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in Jaganmohan Rao's case, as [if] laying down that reassessment wipes out the original assessment and that reassessment is not only confined to 'escaped assessment' or 'under assessment' but to the entire assessment for the year and starts the assessment proceeding de novo giving the right to an assessee to reagitate matters which he had lost during the original assessment proceeding, which had acquired finality, is not only erroneous but also against the phraseology of section 147 of the Act and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. . . ." (p. 319) It was furthermore held: "As a result of the aforesaid discussion, we find that in proceedings under section 147 of the Act, the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice

ITA No. 969/Mum/2021 Assessment Years: 2011-12 under section 148 and where reassessment is made under section 147 in respect of income which has escaped tax, the Income-tax Officer's jurisdiction is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income-tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject-matter of proceedings under section 14. . . ." (p. 320) 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.

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ITA No. 969/Mum/2021 Assessment Years: 2011-12 11. The law as propounded by the Hon‟ble Supreme Court in the above judgment was considered by the Hon‟ble Bombay High Court in the case of Ashoka Buildcon Ltd. vs. CIT (supra). While deciding identical issue in the favour of the assessee, the Hon‟ble Bombay High Court held as under:

“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

ITA No. 969/Mum/2021 Assessment Years: 2011-12 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. 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 :—

ITA No. 969/Mum/2021 Assessment Years: 2011-12 "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 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

ITA No. 969/Mum/2021 Assessment Years: 2011-12 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 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

ITA No. 969/Mum/2021 Assessment Years: 2011-12 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 13

ITA No. 969/Mum/2021 Assessment Years: 2011-12 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.” (Emphasis Supplied) 12. In view of the above judgments of the Hon‟ble Supreme Court and the Hon‟ble High Court as well the factual matrix of the instant case, we conclude that period of limitation as prescribed in Section 263(2) of the Act would start running from the date of original assessment order (i.e. 31.03.2015) and therefore, order, dated 30.03.2021, having been passed by the PCIT after the expiry of the period of limitation specified in Section 263(2) of the Act is set aside and the re-assessment, order dated 24.12.2018, is re-instated. Accordingly Ground No.1 raised by the Appellant is allowed while all the other grounds are disposed off as being infructuous.

Order pronounced on 25.08.2022.

Sd/- Sd/- (Pramod Kumar) (Rahul Chaudhary) Vice President Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 25.08.2022 Alindra, PS

ITA No. 969/Mum/2021 Assessment Years: 2011-12 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.

आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai