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Facts
The assessee company claimed deduction for interest expenditure of Rs. 28,86,53,896/- against interest income from FDRs, which the AO disallowed, treating it as escaped income. The assessee had not commenced its business during the relevant AY. The CIT(A) partly allowed the assessee's appeal. The revenue appealed against the CIT(A) order.
Held
The Tribunal held that the initiation of reassessment proceedings u/s 147 was based on a change of opinion, not new material, and therefore invalid. The Tribunal also found that the PCIT's invocation of proceedings u/s 263 was time-barred, as it was initiated beyond the prescribed limitation period.
Key Issues
Whether the reassessment proceedings initiated by the AO were validly based on change of opinion and whether the PCIT's order u/s 263 was within the period of limitation.
Sections Cited
147, 148, 142(1), 143(3), 144, 263, 156A
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Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER BENCH : The appeal No.36/Hyd/2024 filed by the revenue and Cross Objection (“C.O.”) No.8/Hyd/2024 is filed by M/s. JSW Energy (Utkal) Limited (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), dated 20.11.2023 for the A.Y. 2016-17. The appeal No.539/Hyd/2024 is filed by the assessee against the order passed by Learned Principal Commissioner of Income Tax, Hyderabad-2 (“ Ld. Ld. PCIT”), Hyderabad-2 dated 30.03.2024 for the A.Y. 2016-17. Since connected issues are involved in both these appeals and C.O., for the sake of convenience, these were heard together and are being disposed off by this common order.
2. The revenue has raised the following grounds :
& 539/Hyd/2024 3 C.O. No.8/Hyd/2024
The brief facts of the case are that, the assessee is a company engaged in the business of production, collection and distribution of electricity, filed its Return of Income (“ROI”) for the A.Y. 2016-17 on 28.10.2016 admitting total income of Rs.11,01,50,488/-. The case of the assessee was selected for limited scrutiny through CASS and order u/s.143(3) of the Income Tax Act, 1961 (“the Act”) was passed by Learned Assessing Officer (“Ld. AO”) on 22.12.2018 accepting the returned income of the assessee. Subsequently, during the scrutiny of assessment record, it was observed by the Ld. AO that the assessee had claimed deduction on account of interest expenditure of Rs.28,86,53,896/- under the head of ‘income from other sources’, out of interest income from bank Fixed Deposit Receipts (“FDRs”). Since the assessee had not commenced its business till A.Y. 2016-17, the Ld. AO was of the view that, the assessee was not eligible for & 539/Hyd/2024 4 C.O. No.8/Hyd/2024 such deduction of interest of Rs.28,86,53,896/- as related to pre commencement period, accruing the interest income from bank FDRs. Accordingly, notice u/s.148 of the Act was issued by the Ld. AO to the assessee. The assessee filed its ROI within the time frame provided in notice issued u/s.148 of the Act. The Ld. AO issued notice u/s.142(1) of the Act requiring the assessee to furnish details / information / documents, but the assessee did not comply with the said notices issued u/s.142(1) of the Act. Consequently, relying on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Limited Vs. CIT (1997) 227 ITR 172 (SC), the Ld. AO formed a view that the interest expenses on borrowed funds needs to be capitalised and was not eligible for deduction against the interest income on bank FDRs and treated interest claim of Rs.28,86,53,896/- as escaped income and issued final show cause notice to the assessee. The assessee responded to the final show cause notice of the Ld. AO, but did not file any supporting documentary evidences. Finally, the Ld. AO completed the assessment u/s.147 r.w.s. 144 of the Act on 23.09.2021 disallowing the claim of Rs.28,86,53,896/- on account of expenditure and added the same as income in the hands of the assessee.
Aggrieved by the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). Before the Ld. CIT(A), the argument of the Ld. AR was in two folds. The first argument of the Ld. AR was that, as the assessment was already completed u/s.143(3) of the Act and no & 539/Hyd/2024 5 C.O. No.8/Hyd/2024 such material was brought on record by the Ld. AO, the initiation of reassessment proceedings u/s.147 of the Act is change of opinion on the part of the Ld. AO and therefore, it is bad in law. 4.1 The alternate argument of the assessee before the Ld. CIT(A) was that, when the proceedings u/s.147 of the Act was initiated by the Ld. AO, the assessee was in Corporate Insolvency Resolution Process (“CIRP”) before National Company Law Tribunal (“NCLT”). The CIRP was commenced on 29.08.2018 while the proceedings u/s.147 of the Act was initiated on 13.05.2019 i.e. after the CIRP. Therefore, the initiation of proceedings u/s.147 of the Act is bad in law on this count also. The Ld. CIT(A) allowed the first argument of the assessee, however, he dismissed the alternate argument of the assessee. Accordingly, the Ld. CIT(A) partly allowed the appeal of the assessee. The observation of the Ld. CIT(A) are placed at para nos.5.1.1 to 5.1.2 of his order, which are to the following effect :
& 539/Hyd/2024 6 C.O. No.8/Hyd/2024
Aggrieved with the order of Ld. CIT(A), the revenue is in appeal before us. The Learned Department Representative (“Ld. DR”) submitted that although in the first occasion, the assessment of the assessee was done u/s.143(3) of the Act, but it was a case of limited scrutiny. The case of the assessee was selected for scrutiny for limited purpose, for verification of large share application of money pending for more than one year and under the limited scrutiny, the scope of the scrutiny by the Ld. AO are restricted to the issue for which the case was selected for scrutiny. In the present case, the issue for which the proceedings u/s.147 of the Act has been initiated, was not the subject matter of the limited scrutiny and no verification was & 539/Hyd/2024 7 C.O. No.8/Hyd/2024 made by the Ld. AO on that issue. Hence, no question of any change of opinion arises, when the same issue was not the subject matter of limited scrutiny u/s.143(3) of the Act. Therefore, the findings of the Ld. CIT(A) that, there is a change of opinion on the part of the Ld. AO is not correct. Hence, the order of Ld. CIT(A) is liable to be set aside.
Per contra, the Ld. AR relied on the order of Ld. CIT(A). However, in their alternate submission, the Ld. AR submitted that the NCLT has passed the order under the Insolvency and Bankruptcy Code, 2016 (“IBC”) and hence, requested before the bench to make a suitable direction to the Ld. AO to revise the demand in accordance with the provisions of section 156A of the Act to give effect to the order of NCLT.
We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. There is no dispute about the fact that in the first occasion, the assessment of the assessee was completed u/s.143(3) of the Act which was a limited scrutiny and the subject matter of the reassessment proceedings u/s.147 of the Act was not the subject matter of the limited scrutiny u/s.143(3) of the Act. It is settled position of law that the scope of verification by the Ld. AO under the limited scrutiny is restricted only to the issue for which the case has been selected for limited scrutiny unless the same is converted to complete scrutiny after necessary approval of specified authority. The purpose of limited scrutiny in & 539/Hyd/2024 8 C.O. No.8/Hyd/2024 this case was for verification of large scale application of money pending for more than one year, however, the reason for initiation of proceedings u/s.147 is escapement of income due to wrong claim of interest payment of Rs.28,86,53,896/- against interest income of Bank of FDRs. Accordingly, it is abundantly clear that the issue for which the proceedings u/s.147 of the Act has been initiated was not the subject matter of the limited scrutiny and no verification was made by the Ld. AO on that issue. Hence, there is no question of any change of opinion, when the same issue was not the subject matter of limited scrutiny u/s.143(3) of the Act. Therefore, in our considered opinion, there was no change of opinion on the part of the Ld. AO qua initiation of proceedings u/s.147 of the Act. Accordingly, we set aside the order of Ld. CIT(A) qua this issue. 7.1 However, it has been brought to our notice by the Ld. AR that, the NCLT has passed the order under IBC in the case of the assessee and accordingly, the demand notice is required to be revised u/s.156A of the Act in accordance with the order of NCLT. Therefore, we make a direction to the Ld. AO to verify the order of NCLT and modify the demand notice in accordance with the provisions of section 156A of the Act. 7.2 In the result, the appeal of revenue is allowed for statistical purposes.
& 539/Hyd/2024 9 C.O. No.8/Hyd/2024 C.O. No.8/Hyd/2024 8. The grounds raised by the assessee are as under : “
1. On the facts and circumstances of the case as well as in Law, the Ld. CIT(A) has erred in holding that the Ld. AO was correct in initiating the reassessment proceedings during Corporate Insolvency Resolution Process (CIPR) period.
2. The respondent craves leave to add, amend, alter or delete the said ground of appeal.”
9. The Ld. AR submitted that, when the proceedings u/s.147 of the Act was initiated by the Ld. AO, the assessee was under CIRP before NCLT. The CIRP was commenced on 29.08.2018, while the proceedings u/s.147 was initiated on 13.05.2019 i.e. after the commencement of CIRP. Therefore, the initiation of proceedings u/s.147 of the Act when the assessee was already under CIRP is bad in law. Accordingly, the Ld. AR prayed before the bench to allow the C.O. 9.1 Per contra, the Ld. DR relied on the decision of Hon'ble Supreme Court in the case of Sundaresh Bhatt, Liquidator of Abg Shipyard V. Central Board of Indirect Taxes and Customs, Civil Appeal No.7667 of 2021 dated 26.08.2022, wherein it was held that there is no bar to carryout any proceedings under the Act except enforcement of claim for recovery or levy of interest on the tax due during the period of moratorium. Accordingly, the Ld. DR submitted that, there was no bar in carrying out the income tax proceedings & 539/Hyd/2024 10 C.O. No.8/Hyd/2024 under section 147 of the Act. Therefore, the Ld. DR prayed before the bench to dismiss the C.O. of the assessee. 9.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. The main issue before us is that, whether the initiation of proceedings u/s.147 of the Act, after commencement of CIRP is valid or not. In this context, we have gone through para nos.44 & 45 of the order of Hon'ble Supreme Court in the case of Sundaresh Bhatt (supra), which is to the following effect : “ 44. Therefore, this Court held that the authorities can only take steps to determine the tax, interest, fines or any penalty which is due. However, the authority cannot enforce a claim for recovery or levy of interest on the tax due during the period of moratorium. We are of the opinion that the above ratio squarely applies to the interplay between the IBC and the Customs Act in this context.
45. From the above discussion, we hold that the respondent could only initiate assessment or reassessment of the duties and other levies. They cannot transgress such boundary and proceed to initiate recovery in violation of sections 1`4 or 33(5) of the IBC.” On the basis of aforesaid finding of Hon'ble Supreme Court in the case of Sundaresh Bhatt (supra), it is abundantly clear that, there is no bar to carryout any proceedings under the Act except enforcement of claim for recovery or levy of interest on the tax due during the period of moratorium. Respectfully following the decision of Hon'ble & 539/Hyd/2024 11 C.O. No.8/Hyd/2024 Supreme Court in the case of Sundaresh Bhatt (supra), we reject the contention of the assessee that the initiation of proceedings u/s.147 of the Act after commencement of CIRP is not valid. Accordingly, we dismiss the C.O. of the assessee.
10. The brief facts relevant to this appeal are that, subsequent to completion of order for A.Y. 2016-17 u/s.147 r.w.s. 144 of the Act dated 23.09.2021, the Ld. PCIT invoked proceedings u/s.263 of the Act for the reason that the Ld. AO did not make any enquiry with regard to the share transaction of the assessee with M/s. Ind Bharat Sun Energy Private Limited. Accordingly, the PCIT passed the order u/s.263(1) of the Act on 30.03.2024 making a direction to Ld. AO to pass a fresh assessment order in accordance with law. 10.1 Aggrieved with the order of Ld. PCIT, the assessee is in appeal before us. The Ld. AR submitted that, order u/s.143(3) of the Act was passed by the Ld. AO on 22.12.2018 and in accordance with the provisions contained under section 263(2) of the Act, the Ld. PCIT cannot pass any order u/s.263(1) of the Act after the expiry of two years from the end of the F.Y. in which the order sought to be revised was passed. Hence, the Ld. PCIT had to pass the order u/s.263(1) on or before 31.03.2021. However, the Ld. PCIT has passed the order u/s.263(1) on 30.03.2024, hence, the order passed by & 539/Hyd/2024 12 C.O. No.8/Hyd/2024 Ld. PCIT is after expiry of limitation period and is liable to be quashed. 10.2 Per contra, the Ld. DR submitted that, after completion of assessment u/s.143(3) on 22.12.2018, the case of the assessee was reopened u/s.147 of the Act and the assessment was completed u/s.147 r.w.s. 144 on 23.09.2021. Hence, the order of the Ld. AO dated 22.12.2018 merges with the order of the Ld. AO dated 23.09.2021 and therefore, the limitation period u/s.263(2) of the Act will be calculated from the date of completion of assessment u/s.147 r.w.s. 144 of the Act on 23.09.2021. Accordingly, the limitation period ends on 31.03.2024 and the Ld. PCIT has passed the order u/s.263(1) on 30.03.2024. Therefore, the same is within the period of limitation and is a valid order. Hence, the contention of the assessee is liable to be rejected. Finally, the Ld. DR prayed before the bench to uphold the order of Ld. PCIT. 10.3 In rejoinder, the Ld. AR relying on the decision of Hon'ble Supreme Court in the case of CIT Vs. Alagendran Finance Limited dated 27.07.2007, 293 ITR 01 (SC) submitted that, if the provisions of section 263 of the Act have been invoked on the issue other than the issue dealt in the proceedings u/s.147 of the Act, then the limitation period for the purpose of section 263(2) of the Act will be taken from the date of completion of order u/s.143(3) of the Act and not from the date of order u/s.147 of the Act. Therefore, the Ld. AR submitted that the order of the Ld. PCIT is bad in law and liable to be quashed.
& 539/Hyd/2024 13 C.O. No.8/Hyd/2024 10.4 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. The undisputed facts with regard to the case before us are as under : a) the case of the assessee was taken up for limited scrutiny for verification of large share application money pending for more than one year. b) the assessment u/s.143(3) of the Act was completed by the Ld. AO on 22.12.2018. c) the assessment u/s.147 r.w.s. 144 of the Act was completed on 23.09.2021. d) the Ld. PCIT invoked proceedings u/s.263 of the Act for the reason that the Ld. AO did not make any enquiry with regard to the sales transaction of the assessee with M/s. Ind Bharat Sun Energy Pvt. Ltd., which was not a subject matter for proceedings u/s.147 of the Act. 10.5 Thus it is clear that the issue taken for initiating the proceedings u/s.263 of the Act was not a subject matter of reassessment proceedings and order passed u/s. 147 of the Act on 23.09.2021. We have gone through the decision of Hon'ble Supreme Court in the case of CIT Vs. Alagendran Finance Limited (supra), the relevant part in para no. 15 is reproduced as under : “15. We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, & 539/Hyd/2024 14 C.O. No.8/Hyd/2024 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.” On perusal of above, we found that, the facts of the case under consideration on similar to the facts before the Hon'ble Supreme Court. In the said case, the Hon'ble Supreme Court has given the findings that, if the provisions of section 263 of the Act have been invoked on the issue other than the issue dealt in the proceedings u/s.147 of the Act, then, the limitation period for the purpose of section 263(2) of the Act will be taken from the date of completion of order u/s.143(3) of the Act and not from the date of order u/s.147 of the Act. Respectfully following the findings of Hon'ble Supreme Court in the case of Alagendran Finance Limited (supra), we hold that, as the proceedings invoked by Ld. PCIT u/s.263 of the Act are on the issue other than the issue dealt in proceedings u/s.147 of the Act, the limitation period as per the provisions of section 263(2) of the Act, for the purpose of passing of order u/s.263(1) of the Act, shall be calculated from the date of completion of assessment u/s.143(3) of the Act i.e. 22.12.2018. Hence, the limitation to pass & 539/Hyd/2024 15 C.O. No.8/Hyd/2024 order u/s.263(1) expire on 31.03.2021. However, the Ld. PCIT has passed the order u/s.263(1) on 30.03.2024, which is after expiry of limitation period, therefore, the same is liable to be quashed. Hence, we quash the impugned order of Ld. Ld. PCIT. Accordingly, the appeal of the assessee is allowed.
In the result, the appeal of the revenue in is allowed and C.O. No.8/Hyd/2024 filed by the assessee is dismissed.