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Facts
The assessee filed returns for AY 2013-14 and 2015-16. The original assessments were completed under Section 143(3). The AO later reopened these assessments under Section 147 and passed re-assessment orders. The CIT initiated proceedings under Section 263, believing the original assessment orders were erroneous and prejudicial to the revenue, particularly regarding the allowability of standard deduction on rental income.
Held
The Tribunal held that the Section 263 proceedings were initiated beyond the limitation period. The limitation for issuing orders under Section 263 is to be reckoned from the date of the original assessment order, not the re-assessment order, especially when the issues in the Section 263 proceedings were not part of the re-assessment. The Tribunal found the impugned orders to be time-barred.
Key Issues
Whether the order passed under Section 263 of the Income Tax Act is within the limitation period, considering the period of limitation is to be reckoned from the original assessment order or the re-assessment order.
Sections Cited
139(1), 143(2), 144, 147, 24(1), 24(A), 263, 43B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
Assessee by : Shri Ashok Goel, CA Revenue by : Smt. Kusum Bansal, CIT, DR Date of Hearing : 30.01.2025 Date of Pronouncement : 24.02.2025 HYBRID HEARING O R D E R PER RAJ PAL YADAV, VP
The present two appeals are directed at the instance of assessee against the separate orders of even date i.e.
07.03.2024 passed under Section 263 of the Income Tax Act in assessment year 2013-14 and 2015-16 respectively.
The assessee has taken additional ground of appeal wherein it has pleaded that both the impugned orders are time barred and therefore, not sustainable in the eyes of law.
& 295/CHD/2024 A.Y.2013-14 & 2015-16 2
The brief facts of the case are that assessee has filed its return of income on 26.09.2013 and 27.09.2015 under Section 139(1) of the Income Tax Act for assessment years 2013-14 and 2015-16. Both these years were selected for scrutiny assessments by issuance of a notice under Section 143(2). The assessments have been framed on 03.03.2016 and 10.08.2017.
3.1 The AO has reopened the assessments and who ultimately passed the re-assessment orders under Section 147 read with Section 144 on 23.03.2022 for both the years.
The ld. CIT harboured a belief that assessment orders in both the assessment years are erroneous and have caused a prejudice to the interests of Revenue. Therefore, action under Section 263 is required to be taken. Accordingly, he has issued a Show Cause Notice under Section 263 dated 14.12.2023 in both the years. The reason assigned for issuing these Show Cause Notices has been reproduced in paragraph No. 2 of both the orders. According to the ld. CIT, assessee was engaged in the business of Real Estate. It has disclosed house property income at Rs.17,14,387/- in & 295/CHD/2024 A.Y.2013-14 & 2015-16 3 assessment year 2013-14 and Rs.20,47,661/-. It has claimed deduction under Section 24(1) of the Income Tax Act of Rs.7,34,738/- in assessment year 2013-14 and Rs.8,77,569/- in assessment year 2015-16. In the opinion of the CIT, since assessee was engaged in the business of Real Estate development and therefore, letting out of the properties for earning rental income is one of the business of the assessee in the Memorandum of Association. It cannot claim Standard Deduction from rental income under Section 24(A) of the Income Tax Act. To this extent, he was of the view that assessment orders are erroneous and prejudicial to the interests of Revenue.
The ld. Counsel for the assessee submitted that original orders were passed by the ld. AO under Section 143(3). These were passed on 03.03.2016 and 10.08.2017 in assessment year 2013-14 and 2015-16 respectively. If some error happened, for which an assessment could be termed as erroneous, then these regular assessments are the assessment orders because the assessments were reopened for different reasons. He took us through the copies of & 295/CHD/2024 A.Y.2013-14 & 2015-16 4 reasons available at page No. 49-50 in assessment year 2013-14 and page No. 46 to 47 in assessment year 2015-16.
The reason for taking action under Section 147 was assigned by the AO in sub-para (3) of the Reasons, which read as under :
A.Y. 2013-14
'3. Analysis of Information collected/received;-
The case of the assessee Is flagged by DIT(System) under High Risk Non Pan CRJU/VRU Case on the recommendations of Disseminated Information Risk assessment Committee, constituted by the Board. As per Information available, the assessee company is builder company and has to pay CLU and EDC charges at Rs. 2,24,48,000/- to GMADA but the same has not been paid. The CLU and EDC charges of Rs. 2,24,48,000/ are to be treated as per sect/on 43B of the act. Hence the sum of Rs. 2,24,48,000/- has escaped assessment. A.Y. 2015-16
'3. Analysis of Information collected/received;- The case of the assessee Is flagged by DIT(System) under High Risk Non Pan CRJU/VRU Case on the recommendations of Disseminated Information Risk assessment Committee, constituted by the Board. As per Information available, the assessee company is builder company and has shown CLU and EDC charges payable to GMADA at Rs. 2,61,59,000/-. The CLU and EDC charges of Rs. 1,61,59,000/ are to be treated as per sect/on 43B of the act. Hence the sum of Rs. 1,61,59,000/- has escaped assessment.
On the strength of these reasons, ld. Counsel for the assessee submitted that since no addition was made for the reason assessments were reopened, therefore, ld. CIT(A) cannot count the limitation from the re-assessment orders & 295/CHD/2024 A.Y.2013-14 & 2015-16 5 for taking action under Section 263. He further emphasized that in the opinion of CIT, error happened in the original assessments where such Standard Deduction was allowed to the assessee under Section 24(A) of the Income Tax Act.
Those orders were passed on 03.03.2016 and 10.08.2017 in assessment year 2013-14 and 2015-16 respectively.
Therefore, the impugned orders are not within the limitation as contemplated in sub-clause (2) of Section 263 of the Income Tax Act. In support of his contention, he relied upon judgement of Hon'ble Supreme Court in the case of Commissioner of Income Tax, Chennai Vs Alagendran Finance Ltd. (2007) 7 SCC 215. This judgement has subsequently been followed by the Hon'ble Supreme Court in the case of CIT Mumbai Vs Industrial Development Bank of India Ltd. He placed on record copy of the Hon'ble Supreme Court’s decision in the case of Industrial Development Bank of India Ltd. which is reported in 454 ITR 811. According to the ld. Counsel for the assessee, the issue is squarely covered in favour of assessee by this decision of the Hon'ble Supreme Court.
& 295/CHD/2024 A.Y.2013-14 & 2015-16 6 5.1 On the other hand ld. CIT-DR was unable to controvert the proposition propounded by the ld. Counsel for the assessee.
We have duly considered the rival contentions and gone through the record carefully. There is no dispute qua the fact that issue raked up in 263 proceeding do not arises from the re-assessment orders. The assessment was reopened for all together some different reasons on which no addition was made and ld. CIT did not find any error qua those issues in the 263 proceedings. The reason assigned by the CIT for taking action under Section 263 is that since assessee is engaged in the business of letting out of properties, therefore it is not entitled of Standard Deduction contemplated under Section 24(a) of the Income Tax Act which is available when an assessee returns house property income. In the case of the assessee, its rental income is to be assessed as business income but this was not the subject matter of a re-assessment order. Sub-clause (2) of Section 263 contemplates that “No order shall be made under sub- section (1) after the expiry of two years from the end of the & 295/CHD/2024 A.Y.2013-14 & 2015-16 7 Financial Year in which the order sought to be revised was passed”. The action under Section 263 has been initiated by the CIT(A) on 14.12.2023. The impugned orders have been passed on 07.03.2024. It could have been passed within two years from the end of the Financial Year in which assessments under Section 143(3) were passed in both the years. For example, in assessment year 2013-14, it could be passed before 31.03.2018 and in assessment year 2015-16 it could be passed before 31.03.2019. Thus, both the impugned orders are time barred. For buttressing our reasoning, we taken note of the judgement of Hon'ble Supreme Court in the case of Industrial Development Bank of India Ltd. (supra) which read as under :
"i) 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?" At the outset, it is required to be noted and it is not in dispute that, as such, the Commissioner exercised powers under Section 263 of the Act with respect to the issues which were not covered in the re-assessment proceedings. Therefore, the issues before the Commissioner while exercising the powers under Section 263 of the Act relate back to the original Assessment Order and, therefore, the limitation would start from the original Assessment Order and not from the Re-assessment Order. We are fortified with our view by the decision of this Court in the case of Commissioner of Income Tax, Chennai V. Alagendran Finance Ltd. (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 re-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 & 295/CHD/2024 A.Y.2013-14 & 2015-16 8 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. In view of the above and for the reasons stated hereinabove and in the facts and circumstance of the case narrated hereinabove, no error has been committed by the 1TAT or even the High Court in holding the proceedings under Section 263 of the Act by the Commissioner as barred by limitation. Under the circumstances, the present appeal deserves to be dismissed and is accordingly dismissed.”
In view of the above, both appeals of the assessee are allowed. Impugned orders passed under Section 263 of the Act are quashed.
In result, both the appeals are allowed.
Order pronounced on 24.02.2025.