SIVAKUMARAN PUGAZHENDHI,CHENNAI vs. PCIT,, CHENNAI-4

Per Mahavir Singh, Vice President : This appeal by the assessee is arising out of the revision order of Principal Commissioner of Income Tax, Chennai-4, in Revision No.

PCIT,Chennai-4/Revision-263/100000256483/2021 dated 18.11.2021. The Assessment was framed originally u/s. 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’) vide order dated 28.12.2016 by Asst. Commissioner of Income Tax, Non Corporate Circle-8(1), Chennai. Subsequently, the reassessment was framed u/s. 143(3) of the Act r/w

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s. 147 of the Act for the Assessment Year 2014-15 by the Dy.

Commissioner of Income Tax, Non Corporate Circle-8(1), Chennai

vide order dated 23.11.2019.

to the revision order passed by PCIT u/s. 263 of the Act is barred by

limitation. For this, the assessee has raised the following grounds

No.2, 3 & 4 as under:

“2. For that the order of the Principal Commissioner of Income Tax passed u/s.263 is barred by limitation. 3. For that the Principal Commissioner of Income Tax erred in invoking the / provisions of section 263 in respect of the assessment order passed u/s. 147 r.w.s. 143(3), wherein the issue of claim of loss by the appellant is not the subject matter of the reassessment order; it is a subject matter of the assessment order passed u/s. 143(3). 4. For that the Principal Commissioner of Income Tax failed to appreciate 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.”

PCIT-4, Chennai u/s. 263 of the Act for revising the assessment and

the PCIT wanted to revise the assessment for the reason that the

compensation to the extent of Rs. 1.16 Crore to be borne by the

assessee for having received the advance of Rs. 2.5 Crore from Mr. K.

Sreejith was discharged by the assessee company. Thus, in term of s.

2(24)(iv) of the Act, this benefit of Rs. 1.16 Crore has to be brought to

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tax. The PCIT in his show cause notice dated 21.09.2021 considered

this issue and particularly in para 3.1 to 3.3 noted the facts and issued

show cause notice to the assessee as to why this amount of Rs. 1.16

Crore is not to be taxed. For this, the PCIT observed in Para 3.1 to 3.3

are as under:

“3.1 The land did not belong to the assessee but belonged to the company. Therefore, no loss has arisen in the hands of the assessee. The impugned piece of land admeasuring 1 acre at SF No, 83/3 was purchased by M/s SPE Builders Pvt. Ltd. by deed of sale dated 31/01/2011 regd. Doc No. 160/2011. It remained in the books of the company and hence the titular owner and the real owner is only the company and not the assessee. Therefore, the loss suffered by the company cannot be shifted to that of the assessee and by undertaking such an illogical process, taxable income in the hands of the assessee has been suppressed by incorrect set-oft of non-existent losses. 3.2 As per the statement of the assessee, the compensation to the extent of Rs. 1.16 crores has to be borne by the assesses for having received an advance of Rs. 2.45 crores from Mr. K. Sreejith. To this date, this amount of compensation has not been borne by the assessee but while the compensation has been paid from the coffees of the company, the liability or expenditure winch is to be tictually (named by the assessee was compensated by the company in which the assessee is a director and a substantial stakeholder. As per the provisions of S. 2(24 )(iv), any value of any benefit whether convertible into money or not obtained from a company either from a director or by a person who has substantial interest in the company and any sum paid by any such company in respect of any obligation which, but for such payment would, have been payable by the director or other person aforesaid, is defined to be income to be taxed in the hands of the assessee. It is clear that the obligation on part of the assessee to pay the compensation of Rs, 1.16 crores was discharged by the company, Therefore, this sum of Rs. 1.16 crores is to be treated as income in the hands of the assessee. 3.3 Based on the discussion made in Para 3.1 and 3.2 above, it is seen that the assessee is not entitled to claim the loss of Rs. 1.16 crores, which is otherwise a loss that has arisen in the books of the company and not in the hands of the assessee. Secondly, the obligation on part of the assessee to the extent of Rs. 1.16 crores has been discharged by the company and thus in terms of S. 2(24)(iv), this benefit of Rs. 1.16 crores has to be additionally brought to tax.”

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set aside the assessment framed by A.O i.e., the reassessment order

dated 23.11.2019 passed u/s. 143(3) r/w 147 of the Act by DCIT,

Chennai. The PCIT while revising the assessment observed in Para

7.1 to 8.1 as under:

“7.1 Coming to the merits of the case, it is abundantly clear that the compensation on account of “Out of Court” settlement with Sri P. Sreejith was paid out in kind by discharging the property owned by the Company and not by the Assessee. Such loss to the company was never compensated by the assessee either in cash or kind subsequently. The liability to such effect was neither in the past nor future was borne by the Asseseee. In short, there was never a liability cast upon the assessee in any form consequent to this transaction. 7.2 Under the provisions of Income tax law, each person defined u/s 2(31) is distinct and unless a corresponding liability appears in the books of the Assessee and its subsequent discharge from the coffers of the Assessee, it can never be stated that the corresponding loss would pertain or belong to the Assessee. 7.3 This is where a clear thought process emerges that it is a case of tax avoidance effort been made by the parties and unable to uphold the same in the overall analysis of the facts and legal position applicable to the facts of the present case. 7.4 "Diversion of Income (loss) by transfer of overriding title at source" of such nature should normally have the support of the statutory requirements or some decretal binding character of Courts of law, and in its absence the Income Tax Authorities have to examine such aspects carefully in comparison to the above two other categories of statutory requirements and the Court decrees. When examined carefully in this angle, the real purport and object of this private arrangement is nothing but "tax avoidance" which cannot be entertained. The real purpose of this revisionary proceedings is to reach the truth behind the transactions having the sole purpose of tax avoidance. 7.5 Therefore it is concluded that the assessee is not entitled to claim the loss of Rs. 1.16 crores, which is otherwise a loss that has arisen in the books of the company and not in the hands of the assessee.

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8.1 On the second issue which falls in the ambit of taxation u/s 2(24)(iv), the assessee has himself stated that the liability belongs to him but such obligation was discharged by the Company in which he has substantial stake to the extent of Rs. 1.16 Crores.”

Aggrieved against the revision order passed by PCIT, the

assessee came in appeal before the Tribunal.

Abirami, Advocate argued on behalf of the assessee. On the other

hand, Shri M. Rajan, CIT argued for the Revenue.

and circumstances of the case. We have perused the case records

including the original assessment order passed u/s. 143(3) of the Act

dated 28.12.2016, the reassessment order passed u/s. 143(3) r/w s.

147 of the act dated 23.11.2019 and the revision order passed by

PCIT u/s. 263 of the Act dated 18.11.2021 and also the paper book

filed by the assessee consisting of Pages 1 to 84. The first issue

raised by the assessee in this appeal is as regards to barred by

limitation. The Ld. Counsel for the assessee Ms. T.V. Muthu Abirami,

Advocate stated that in the original assessment order passed by ACIT

dated 28.12.2016 u/s. 143(3) of the Act, this issue was considered by

the A.O. For this, she relied on the notice issued by A.O u/s. 142(1)

dated 21.04.2016 along with Annexure to notice u/s. 142(1), wherein

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the details of sundry debtors and creditors, details of investments

made during the year and source thereof was called for. The Ld.

Counsel for the assessee stated that the assessee received

unsecured loan as outstanding as on 31.03.2014 to the extent of Rs.

5,10,11,353/- and advances from customers to the extent of Rs.

26,63,83,813/-. The assessee has given complete details of unsecured

loan in its reply dated 26.10.2016 and also in respect of advances from

customers. The Ld. Counsel also explained the transactions entered

into with Shri P. Sreejith and payment made of Rs. 1.16 Crore was

disclosed before A.O during original assessment proceedings vide

letter dated 26.10.2016 and the relevant question raised by A.O vide

letter dated 26.10.2016, reads as under:

“In the consolidated Profit and Loss Account, you have debited a sum of Rs. 1,16,46,460/- towards “loss from business” what is the nature of this loss and to which business. Please furnish evidence for this loss claimed.” 7. The assessee filed reply to the same and claimed the loss of Rs.

1.16 Crore and the A.O after considering the same framed original

assessment order u/s. 143(3) of the Act dated 28.12.2016. Once this

assessment was completed, it means that the A.O accepted this loss

claimed by the assessee as genuine in the assessment order passed

u/s. 143(3) of the Act dated 28.12.2016. The Ld. Counsel for the

assessee drew our attention to the notice issued u/s. 148 of the Act

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dated 30.03.2019 and the relevant reasons recorded supplied by the

A.O vide letter dated 31.05.2019 and the relevant reasons reads as

under:

"...... Shri S. Pugazhendhi (AEIPP1Q97E), No.70, Raja Agraharam Street, Poonamallee, Chennai - 600056 is assessed to tax in this office and has filed his return of income for the AY: 2014-15 on 01/12/2015 (original) and has revised the same on 19/01/2015 claiming a loss of Rs. 64,34,177/-r The Assessment in this case was completed u/s 143(3) on 28/12/2016 on a loss of Rs. / 51,74,579/-. It is now gathered that the assessee has admitted to cash deposits of Rs. 50,00,000- which was made into the bank account of Shri K. Elango, an employee of the assessee during FY: 2013-14. This admission has been made before the ADIT, I & CI Wing, Chennai. Though, the amount of Rs. 50.00,000/- was admitted by the assessee, he was unable to produce the books of account to substantiate the transact/on. However, in view of the categorical admission of Rs. 50,00,000/- cash deposits, it is clear that same has not been accounted in the books of the assessee. Therefore, I have the reason to believe that the amount of Rs. 50,00,000/-has escaped assessment within the meaning of explanation 2© of Section 147....."

stated that the issue as per reasons recorded in issuance of notice u/s.

148 of the Act is that the amount of Rs. 50 Lakh has escaped

assessment, which was admitted by the assessee being cash deposit

in the bank account of Shri K. Elango, employee of the assessee

during Financial Year 2013-14 relevant to this Assessment Year 2014-

notice and in his revision order passed u/s. 263 of the Act is as

regards to compensation of Rs. 1.16 Crore whether to be taxed in the

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hands of the assessee or assessee is entitled or not entitled to claim

loss of Rs. 1.16 Crore. According to her, this issue was considered by

the A.O during original assessment proceedings and a specific query

was raised by the A.O during original assessment proceedings vide

notice dated 26.10.2016 and the assessee has replied to the same,

which was considered by A.O and allowed the claim of loss of Rs.

1,16,46,460/-. According to her, the point of dispute starts from the

original assessment order as a particular issue was before A.O during

original assessment proceedings and original assessment was

completed by the A.O on 28.12.2016. She argued, without conceding,

but if the facts are that the A.O’s order is erroneous or prejudicial to

the interest of Revenue i.e., only the original assessment order passed

u/s. 143(3) of the Act order dated 28.12.2006. She stated that the

revision order passed by PCIT-4, Chennai dated 18.11.2021 is barred

by limitation. In view of the above facts, the Ld. Counsel for the

assessee stated that this issue is specifically covered by the decision

of Hon’ble Supreme Court in the case of CIT v. Alagendran Finance

Ltd. [2007] 162 Taxman 465 (SC) and also by Jurisdictional High Court

in the case of Indira Industries v. PCIT [2018] 95 taxmann.com 292

(Madras).

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passed by PCIT for the relevant assessment year 2014-15 dated

18.11.2021 is within time as the assessment was reopened and re-

assessment was framed by the A.O u/s. 143(3) r/w s. 147 of the Act

vide order dated 23.11.2019. According to him, once the assessment

is reopened the entire assessment is before the A.O and the A.O

should have looked into this aspect which was not considered by the

A.O and hence, the reassessment order is actually erroneous and

prejudicial to the interest of revenue. The Ld. CIT-DR hence,

supported the order of the PCIT revising the assessment.

relied upon and perused materials on record. Before we proceed to

deal with the substantive issue raised by the assessee, it is necessary

to put on record the following dated and events in chronological order:

Date Event 01.02.2014 Original return of income filed by the assessee 28.12.2016 Original assessment framed by A.O u/s. 143(3) of the Act 30.03.2019 Notice u/s. 148 issued 23.11.2019 Reassessment completed u/s. 143(3) r/w. s. 147 of the Act 21.09.2021 Revision notice u/s. 263 of the Act was issued by PCIT 18.11.2021 Revision order passed by PCIT u/s. 263 of the Act

passed under section 263 of the Act, it becomes very much clear that

he has revised the assessment order passed under section 143(3)

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r.w.s. 147 of the Act. Thus, the issues before us are, firstly, whether

the assessment order passed under section 143(3) r.w.s. 147 of the

Act can be considered to be erroneous and prejudicial to the interest of

revenue so as to clothe PCIT with the powers to revise under section

263 of the Act and secondly, whether the issue based on which PCIT

has revised the assessment order under section 263 of the Act can be

considered to be an issue concerning the re-assessment proceeding

or arises out of the original assessment proceeding for the purpose of

limitation under section 263(2) of the Act.

power to revise any order, as referred to in sub section (1) of section

263 of the Act, before expiry of two years from the end of the financial

year in which the order sought to be revised was passed. A reference

to the dates and events narrated above would make it clear that time

limit for revising the assessment order passed under section 143(3)

(the original assessment order) has already expired. Whereas, the

time limit for revising the assessment order passed under section

143(3) r.w.s. 147 of the Act was still there. Thus, the crucial issue

which requires adjudication is, whether the revision order passed

under section 263 of the Act within limitation or not?

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under section 147 of the Act, as reproduced in this order, would reveal

that the assessing officer has reopened the assessment under section

147 of the Act for the specific purpose of assessing the amount of

Rs.50,00,000/- cash deposit in the bank account as unexplained. It is

also a fact on record that the assessing officer has ultimately

completed the assessment under section 143(3) r.w.s. 147 of the Act

by making of addition of Rs.50,00,000/-, i.e. the income which has

escaped assessment as per the reasons recorded. Neither the

reasons recorded for reopening the assessment nor any other material

on record demonstrate that the issue, in term of s. 2(24)(iv) of the Act,

this benefit of Rs. 1.16 Crore has to be brought to tax, was ever a

subject matter of dispute in the re-assessment proceedings either at

the time of initiation of proceedings under section 147 of the Act or in

course of the reassessment proceedings.

assessing office, in course of proceedings under the said provision can

not only assess / re-assess the escaped income based on which the

assessment was reopened, but can also assess any other income

chargeable to tax which has escaped assessment and which comes to

his notice subsequently in the course of proceedings under the

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aforesaid provision. Explanation 3 to section 147 of the Act further

clarifies the substantive provision by saying that the assessing officer

may assess or re-assess the income in respect of any issue which has

escaped assessment and such issue comes to his notice subsequently

in the course of proceedings under section 147 of the Act,

notwithstanding that such issue does not form part of reasons

recorded for reopening of assessment. Thus, on a holistic reading of

section 147 of the Act it becomes very much clear that alongwith

escaped income for which the assessment was reopened, the

assessing officer can assess other escaped income which

subsequently comes to his notice in course of re-assessment

proceedings. In the facts of the present case, undisputedly, the issue,

in term of s. 2(24)(iv) of the Act, this benefit of Rs. 1.16 Crore has to

be brought to tax, neither was a subject matter of reopening as per

reasons recorded, nor did such matter come to the notice of the

assessing officer in course of re-assessment proceedings.

147 of the Act is for the specific purpose of assessing the escaped

income. Therefore, in a reassessment proceeding, the assessing

officer can only assess those incomes which have escaped

assessment. The income which is subject matter of assessment in the

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original assessment proceeding, certainly, cannot be considered in the

reassessment proceeding. In the facts of the present case, a perusal

of the assessment order passed under section 143(3) of the Act would

make it clear that the issue relating to assessment in term of s.

2(24)(iv) of the Act, this benefit of Rs. 1.16 Crore has to be brought to

tax was a subject matter there. In fact, the assessing officer has dealt

with the above issue of assessment in term of s. 2(24)(iv) of the Act,

this benefit of Rs. 1.16 Crore has to be brought to tax in the

assessment order passed under section 143(3) of the Act. Thus, this

issue cannot be a subject matter of re-assessment under section 147

of the Act, as, such reopening of assessment was for assessing a

particular income, which escaped assessment. Thus, the attempt of

learned PCIT to get over the decision of Hon'ble Supreme Court in

case of CIT vs Alagendra Finance Ltd. (supra) and the decision of

Hon'ble Bombay High Court in Asoka Buildcon Ltd vs. ACIT 325 ITR

574 (Bob.) by referring to the third proviso to section 147 of the Act

must fail. In case of Alagendran Finance Ltd (supra), the Hon'ble

Supreme Court, while dealing with more or less an identical issue of

revisionary power exercised under section 263 of the Act in respect of

an assessment order passed under section 143(3) r.w.s. 147 of the

Act, has held in the following manner:-

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"7, A bare perusal of the order passed by the Commissioner of Income Tax would clearly demonstrate that only that part of order of assessment which related to lease equalization fund was found to be prejudicial to the interest of the Revenue. The proceedings for reassessment have nothing to do with the said head of income. Doctrine of merger, therefore, would not apply in a case of this nature.

"Section 147, which is subject to Section 148, divides cases of income escaping assessment into two clauses i.e. viz. (a) those due to the non- submission of return of income or non-disclosure of true and full facts and (b) other instances. Explanation (1) defines as to what constitutes escape of assessment. In order to invoke jurisdiction under Section 147(a) of the Act, the ITO must have reason to believe that some income chargeable to tax of an assessee has escaped assessment by reason of the omission or failure on the part of the assessee either to make a return under Section 139 for the relevant assessment year or to disclose fully and truly material facts necessary for the assessment for that year. Both the conditions must exist before an ITO can proceed to exercise jurisdiction under Section 147(a) of the Act. Under Section 147(b) the Income-tax Officer also has the jurisdiction to initiate proceedings for reassessment where he has reason 'to believe, on the basis of information in his possession, that income chargeable to tax has been either under- assessed or has been assessed at too low a rate or lias been made the subject of excessive relief under the Act or excessive loss or depreciation allowance has been computed. In either case whether the Income-tax Officer invokes his jurisdiction under Clause (a) or Clause (b) or both, the proceedings for bringing to tax an 'escaped assessment' can only commence by issuance of a notice under Section 148 of the Act within the time prescribed under the Act. Thus, under Section 147, the assessing officer has been vested with the power to "assess or reassess" the escaped income of an assessee. The use of the expression "assess or reassess such income or recompute the loss or depreciation allowance" in Section 147 after the conditions for reassessment are satisfied, is only relatable to the preceding expression in Clauses (a) and (b) viz., "escaped assessment". The term "escaped assessment" includes both "non- assessment" as well as "under assessment". Income is

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said to have "escaped assessment" within the meaning of this section when it has not been charged in the hands of an assessee in the relevant year of assessment. The expression "assess" refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of Section 147 because the assessment had not been made in the regular manner under the Act. The expression "reassess " refers to a situation where an assessment has already been made but the Income-tax Officer has, on the basis of information in his possession, reason to believe that there has been under assessment on account of the existence of any of the grounds contemplated by the provisions of Section 147(b) read with the Explanation (I) thereto." 9. We may at this juncture also notice the decision of this Court in Hind Wire Industries Ltd (supra) wherein the decision of this Court in V. Jaganmohan Rao v. CIT and CEPT f75 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."

"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 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

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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 othenvise 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 hut 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"

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 ressessment is made under Section 147 in respect of income which has escaped tax. the Income Tax Officer's jurisdiction is confined to only such incom.e 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

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order of assessment in respect of metters which are not the subject- matter of proceedings under Section 147"

We, therefore, are clearly of the opinion that in a case of this nature, the doctrine of merger will have no application.

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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 hound"

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 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."

the Hon'ble Bombay High Court in case of Asoka Buildcon Ltd (supra),

has 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 in so far 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 December 2006 was passed, has expired on 31 March 2009. Hence the exercise of the revisional jurisdiction in respect of the original order of reassessment is barred by limitation.

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This is sought to be obviated by the Commissioner of Income Tax by seeking to revise, under Section 263, the order dated 27 December 2007. The order dated 27 December, 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 Commissioner of Income Tax V/s. Alagendran Finance Ltd. The issue which arose before the Supreme Court was whether, for the purpose of computing the period of limitation envisaged under sub-section (I) 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 February 1997, 12 May 1997 and 30 March 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 (in) 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 March 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 C.I.T. V/s. Sun Engineering Co. Pvt. Ltd.2 and held that the Tribunal had found that all the subsequent events were in respect of matters other than the

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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 fallows :-

"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 2 (1992) 198 I.T.R. 297 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 Act (No..2) of 2009 with retrospective effect from 1 April, 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

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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 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 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 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

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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 tlie 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 rim 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 issu.es which did not form the subject matter of the reassessment proceedings under Section 143(3) read with 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 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.

11) Counsel appearing on behalf of the Revenue relied upon the judgment of the Supreme Court in Income Tax Officer V/s. K.L. Srihari (UHF)3. That was a case where an assessment was reopened under Section 147. The Supreme Court, after considering the original order of assessment dated 19 March 1983 and the order of reassessment dated 16 July 1987 passed under Section 147 held that the subsequent order made a fresh assessment of the entire income of the assessee. Once, in the exercise of the power under Section 147, the Assessing Officer had reassessed the entire income of the assessee, the Supreme Court held that the original order would stand effaced by the subsequent order. Srihari was, therefore, a case where the subject matter of the original order of assessment as well as of the order of reassessment was the same.

This is distinct from the situation in the subsequent judgment of 3 (2001) 118 Taxman 890 (S.C.) Alagendran Finance where the Supreme Court noted that the subject matter of the original assessment and the order of reassessment, was not the same. The facts of the present case are similar to those in Alagendran Finance which must, therefore, apply.

12) For these reasons, we are of the view that the exercise of the revisional jurisdiction under Section 263 is barred by limitation. We

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clarify that this would not preclude the Revenue from taking recourse to any other remedy that may be available in law." 17. In any case of the matter, in our considered opinion, the ratio laid

down by the Hon'ble Supreme Court in case of Alagendran Finance

Ltd. (supra) and the Hon'ble Bombay High Court in the case of Ashoka

Buildcon (supra) clinches the issue in favour of the assessee. Further,

a reading of the original assessment order would reveal that the issue

relating assessment in term of s. 2(24)(iv) of the Act, of Rs.1.16 crores

was a subject matter therein. Thus, in the aforesaid scenario, the

assessment order passed under section 143(3) r.w.s. 147 of the Act

cannot be considered as erroneous and prejudicial to the interest of

revenue to subject it to proceeding under section 263 of the Act. If, at

all, any order of the subordinate authority which could have been

considered as erroneous and prejudicial to the interest of revenue in

allowing, either due to lack of enquiry or otherwise, is the original

assessment order passed under section 143(3) of the Act and not the

re-assessment order. Therefore, the period of limitation prescribed

under section 263(2) of the Act would run from the original assessment

order.

could not be revised under section 263 of the Act due to bar of

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limitation, as provided under sub section (2) of section 263 of the Act, PCIT, as it appears, has proceeded to revise the assessment order passed under section 143(3) r.w.s. 147 of the Act to get over the hurdle of limitation. This, in our view, is impermissible. Thus, based on the foregoing reasoning, we hold that the impugned order of PCIT revising the order passed under section 143(3) r.w.s. 147 of the Act is unsustainable. Accordingly, we quash the same.

Order pronounced on 21st September, 2022.

Sd/- Sd/- (महावीर िसंह) कुमार अ�वाल अ�वाल अ�वाल) अ�वाल (मनोज मनोज मनोज कुमार मनोज कुमार कुमार (Mahavir Singh) (Manoj Kumar Aggarwal) उपा�� / Vice President लेखा सद�य सद�य सद�य /Accountant Member सद�य लेखा लेखा लेखा चे�ई/Chennai, �दनांक/Dated: 21st September, 2022. EDN/-

आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF