HSBC SECURITIES AND CAPITAL MARKETS (INDIA) PRIVATE LIMITED,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME-TAX, MUMBAI-4, MUMBAI

Per : Narender Kumar Choudhry, Judicial Member:

This appeal has been preferred by the Assessee against the order dated 26.03.2024, impugned herein, passed by the Ld. Principal
Commissioner of Income Tax (in short Ld. PCIT) under section 263 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2014-15. M/s. HSBC Securities and Capital Markets (India) Private Limited

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2. In the instant case, the Assessee had declared its total income at Rs.28,06,90,350/- by filing its return of income on 28.11.2014, which was selected for scrutiny under CASS and ultimately resulted into passing of the assessment order dated 17.01.2018 u/s 143(3) r.w.s. 144C of the Act and assessing the total income at Rs.52,35,41,450/- under normal provision and book profit of Rs.3,66,88,639/- under the provision of section 115JB of the Act.

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30.03.2022 assessing the total income at Rs.28,06,91,290/- wherein the FAO has ignored the addition/disallowance of Rs.24,28,51,098/- made in the original assessment order dated
17.01.2018 u/s 143(3) of the Act.
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On the aforesaid reasons, the Ld. PCIT has formed an opinion that FAO has passed the order without making enquiries or verification which should have been made. To that extent the assessment order passed by the AO suffers infirmity and is erroneous in so far as it is prejudicial to the interest of the revenue. The Ld. PCIT consequently issued a notice dated
25.09.2023 u/s 263 of the Act which read as under.

“In your case, return of income for A.Y. 2014-15 was filed on 28.11.2014
declaring total loss of Rs.
28,06,90,350/-
Subsequently, your case was selected for scrutiny under CASS and Assessment Order u/s 143(3) of the IT Act for AY 2014-15 was completed on 17.01.2018
assessing the total income at Rs.52,35,41,450/-. Thereafter, your case was re-opened u/s. 147
of the Act and the assessment u/s. 147 r.w.s 1448 was completed on 30.03.2022 assessing the total income at Rs. 28,06,90,035/-.
2. On perusal of case records, it is seen that the assessed income as per the assessment order u/s. 143(3) of the Act dated
17.01.2018 has been ignored by the Faceless Assessing Officer in the order passed u/s. 147 r.w.s 144B of the Act vide order dated
30.03.2022. 3. Further, it is seen that an amount of Rs. 1,68,03,023/- was disallowed in view of the provisions of Section 14A of the Act in the assessment order u/s. 143(3) of the Act dated 17.01.2018. However, it is noticed that for computing 8D (ii) & (iii), the closing value of investment was taken after deducting provision for diminution in value of Rs. 716,26,80,000/-. It should have been taken the average of opening investment under clause III of Rule
8D (2). Omission to do so resulted in under disallowance to the extent of Rs.3,50, 18,870/-. In order to examine the aforementioned issue, your case was reopened u/s. 147 of the Act. However, the Assessing Officer has erroneously recorded the reasons pertaining to Assessment Year 2013-14 and thus the assessment was completed u/s. 147 r.w.s 1448 vide order dated 30.03.2022
accepting the returned income of Rs. 28,06,90,035/- wherein the Faceless Assessing Officer has ignored the addition/disallowance of Rs.24,28,51,098/- made in the original assessment order u/s.
143(3) dated 17.01.2018. M/s. HSBC Securities and Capital Markets (India) Private Limited

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4. In view of the aforesaid reasons, it is seen that the Assessment Order dated 30.03.2022 passed is erroneous in so far as it is prejudicial to the interest of the revenue. Therefore, I, the Pr.
Commissioner of Income-tax-4, Mumbai, in exercise of the powers conferred on me under the provisions of Section 263 of the I.T. Act,
1961, propose to consider this matter and pass such order thereon as the facts and circumstances of t the case may justify.
5. Before doing so, I hereby give you an STMENT of being heard to explain your stand. If you desire to be heard in person or through an authorised representative, you may please attend before me at my office at the above-mentioned address on 10/10/2023 at 12:00 PM. You are also requested to furnish your submissions in writing so as to reach me on or before the date mentioned above........”

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scrutiny assessment dated
19.05.2016
and Rs.4,19,91,397/-after giving appeal effect dated 5.10.2018. Hence, there was no loss set off available to the assessee for A.Y. 2013-14. 3. Therefore, irregular set off of losses resulted in underassessment of income by Rs.5,79,56,973/- with a consequent short levy of tax of Rs. 1,88,04,139/- excluding interest u/s 234B of the I.T. Act, if any.

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”

It is evident from para 1, 2 and 4 of reasons above that all of them refer to the facts relevant to AY 2013-14 though the approval u/s 151 refers to AY 2014-15. 2.3.2
It is settled legal position that if the issues to be considered in the revisionary proceedings are distinct and different from the reasons for reopening the assessment, the time limit for passing the order u/s 263 of the Act would start from the date of the passing of original assessment order and not the date of reassessment order.

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rejected. The relevant portion of the said order is reproduced hereunder for Your Honours reference:

"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.

"3.... We are fortified with our view by the decision of this Court in the case of CIT v. Alagendran Finance Ltd. [2007]
162 Taxman 465/293 ITR 1/[2007] 7 SCC 215. As observed and held by this Court in the aforesaid decision, once an Order of Assessment is reopened, the previous order of assessment 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 proceedings of assessment would be deemed to have been re-opened. Meaning thereby, only in a case where the issues before the Commissioner at the time of exercising powers under section 263 of the Act relate to the subject matter of re- assessment, the limitation would start from the date of Re-assessment Order However,
M/s. HSBC Securities and Capital Markets (India) Private Limited

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if the subject matter of the re- assessment is distinct and different, in that case the relevant date for the purpose of determination of period of limitation for exercising powers under section 263 of the Act would be the date of the original
Assessment Order"

Most respectfully, the issues for which Your Honour has issued the captioned notice relate to the Original Order. Hence, following the above-quoted settled legal position, the time limit of two years u/s 263(2) applies to the Original Order which time limit has expired.
Therefore, the revision proceedings are time barred.”

(Highlighted by us for clarity)

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6. The Assessee, being aggrieved, is in appeal before us. The Assessee mainly challenged the impugned order on the ground that in the reassessment proceedings, the reasons for reopening were recorded in respect of the case for A.Y. 2013-14 but not the case pertaining to A.Y.
2014-15 which is under consideration and therefore the FAO has not made any addition in the order dated 30.03.2022 u/s 147 r.w.s. 144B of the Act and adopted the returned gross total income Rs.28,06,90,350/-, as declared by the Assessee. The Assessee therefore claimed that the issues selected for revisionary proceedings u/s 263 of the Act are distinct from the reasons for re-opening the assessment u/s 147 of the Act.
Therefore, limitation period to invoke section 263 shall commence from the date of the original assessment order, as none of the issues stated in the notice u/s 263 of the Act emanates from the reasons for the reopening. Thus, the limitation period for the order u/s 263 would start from 17.01.2018 being the date of the original assessment order u/s 1543(3) of the Act and the therefore time period has expired on 31.03.2021, much before issuing the notice dated 25.09.2023 u/s 263
of the Act and therefore as per the decision of the Hon’ble Apex Court and Hon’ble High Courts referred to above in the submission made before the Ld. PCIT, the impugned notice is liable to be set aside, for the want of limitation.

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8. We have heard the parties and perused the material available on record. Admittedly the AO in the reassessment proceedings in the reopened case u/s 147 of the Act, has taken into consideration the facts and circumstances and the issues involved in the case pertaining to A.Y. 2013-14 but not relevant to A.Y. 2014-15 and recorded the following reason for reopening of the assessment.
M/s. HSBC Securities and Capital Markets (India) Private Limited

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M/s. HSBC Securities and Capital Markets (India) Private Limited

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M/s. HSBC Securities and Capital Markets (India) Private Limited

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31.03.2021 and Assessee filed return against notice u/s 148. Accordingly, statutory notice u/s 143(2) of the Act dated
24.01.2022 was issued and duly served upon the assessee.

“When the issues involved in the revisionary proceedings are distinct and different from the reasons for reopening the assessment then what would be the starting point of time for passing the order u/s 263 of the Act, whether it would be from the date of the passing of the original assessment order or the date of the reassessment order?”

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revisionary juri iction beyond the period of limitation, would be without juri iction rendering the entire proceedings nullity. For ready reference and clarity, the relevant paras of the judgments are reproduced herein below:
“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 Engineering Works P. Ltd (supra) also, V. Jaganmohan Rao (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 juri iction and duty to levy tax on the entire income that had escaped assessment during the previous yearThe judgment in Jaganmohan Rao's case, therefore, cannot be read to 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 M/s. HSBC Securities and Capital Markets (India) Private Limited

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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 under Section 148 and where reassessment is made under Section 147 in respect of income which has escaped tax, the Income Tax Officer's juri iction 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 under- assessment 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 147"
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 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 M/s. HSBC Securities and Capital Markets (India) Private Limited

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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 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. The order of reassessment is one which deals with the assessment 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"
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 circumstances of this case and, in particular, having regard to the fact that the Commissioner of Income Tax exercising its revisional juri iction reopened the order of assessment only in relation to lease equalization fund which M/s. HSBC Securities and Capital Markets (India) Private Limited

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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 juri iction having, thus, been invoked by the Commissioner of Income Tax beyond the period of limitation, it was wholly without juri iction rendering the entire proceeding a nullity.”

{highlighted by us for clarity}
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We further observe that Hon’ble Apex Court in the case of CIT vs.
Industrial Development Bank of India Ltd. (2023) 454 ITR 811 (SC) while dealing with the identical issue as involved in the instant case and by considering the judgment of the Hon’ble Apex Court in the case of CIT vs.
Alagendran Finance Ltd. (supra) reiterated “that where the issues before the Commissioner at the time of exercising the powers u/s 263 of the Act relate to the subject matter of reassessment, the limitation would start from the date of reassessment order. However, if the subject matter of the reassessment is distinct and different, in that case, the relevant date for the purpose of determination of the period of limitation for exercising the powers u/s 263 of the Act would be the date of the original assessment order”, by observing and holding as under:

“2. The following question of law arises for consideration of this Court in the present appeal

"(1) Whether in the facts and circumstances of the case and in law, the period of limitation for passing order under section 263
of the Income Tax Act, 1961 has to be reckoned from the date of the original assessment order or from the date of the reassessment order?"

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ITR 1/[2007] 7 SCC 215. As observed and held by this Court in the aforesaid decision, once an Order of Assessment is re- opened, the previous order of assessment 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 re- assessment is distinct and different, the entire proceedings of assessment would be deemed to have been re- opened. Meaning thereby, only in a case where the issues before the Commissioner at the time of exercising powers under section 263 of the Act relate to the subject matter of re-assessment, the limitation would start from the date of Re-assessment Order. However, if the subject matter of the re-assessment is distinct and different, in that case the relevant date for the purpose of determination of period of limitation for exercising powers under section 263 of the Act would be the date of the original Assessment Order.

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Act, would begin to run from the date of assessment and not from the date of re-assessment and the revisional juri iction if having, been invoked by the Ld. PCIT, beyond such period of limitation, would be without juri iction and render the entire proceeding a nullity.”

Order pronounced in the open court on 10.02.2025. (GIRISH AGRAWAL) (NARENDER KUMAR CHOUDHRY)
ACCOUNTANT MEMBER JUDICIAL MEMBER

* Kishore, Sr. P.S.

Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The DR Concerned Bench

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By Order

Dy/Asstt.