PR. COMMISSIONER OF INCOME TAX-2 vs. M/S KARNATAKA POWER CORPORATION LIMITED

PR. COMMISSIONER OF INCOME TAX-2, BMTC COMPLEX, KORAMANGALA, BANGALORE.

THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -4 (1) (1), BENGALURU. …APPELLANTS

M/S KARNATAKA POWER CORPORATION LIMITED, No.82 SHAKTHI BHAVAN, RACE COURSE ROAD, BENGALURU-560001. …RESPONDENT

The following substantial questions of law are admitted on 04.02.2022. "(i) Whether on the facts and in the circumstances of the case, the tribunal is right in law in holding that computation of deduction under Section 80I was never the subject matter of issue in any proceeding and as such limitation under Section 154(7) of the Act would

The assessee filed return of income on 30.10.2002 declaring an income of Rs.246,40,54,707/-. The Assessing Officer completed the assessment under Section 143(3) of the Income Tax Act, 1961 (for short 'the Act') dated 10.02.2005. The said order was subjected to revision under Section 263 of the Act by the Commissioner of Income Tax in respect of two issues. (i) Donation of Assets of Rs . 2,18,08,292/-. (ii) Loss of assets of Rs . 2,19,73,292/-. In exercise of power under Section 263 of the Act, the Commissioner set aside the assessment order and directed the

The Assessing Officer giving effect to the order of the Commissioner under Section 263 of the Act and the order of the ITAT passed order under Section 143(3) read with Section 254 of the Act on 20.10.2011. The Assessment Order dated 20.10.2011 determined the tax liability in conformity with the directions of the Commissioner. Thereafter, the Assessing Officer issued notice under Section 154 of the Act to rectify the order dated 20.10.2011 insofar as the deduction granted under Section 80IA of the Act of Rs.80.55 Crores. The Assessing Officer, under an order dated 28.03.2012, rectified the order of assessment dated 20.10.2011, withdrawing the deduction of Rs . 80.55 Crores under Section 80IA of the Act.

This order of rectification was the subject matter of appeal before the Commissioner of Income Tax (Appeals) (for short 'CIT(A)'). The CIT(A), by order dated 22.11.2016, rejected the appeal. The assessee further aggrieved preferred an appeal before the ITAT. The ITAT under impugned order held that the order under Section 154 of the Act dated 28.03.2012 is barred by limitation under Section 154(7) of the Act.

Sri.E. I. Sanmathi, learned Senior Standing Counsel appearing for the appellant-revenue submits that the order of assessment dated 10.02.2005 was subjected to revision under Section 263 of the Act. The order under revision was carried in appeal by the assessee before the ITAT. The Assessing Officer in conformity with the directions under Section 263 of the Act and the findings of the ITAT, passed order under Section 143(3) read with Section 254 of the Act on 20.10.2011. It is submitted that in the order dated 20.10.2011, the Assessing Officer has wrongly allowed deduction under Section 80IA to the extent of Rs.80.55 Crores. As the mistake is apparent from the record, the Assessing Officer was justified in invoking

Per contra, Sri. A. Shankar, learned Senior counsel appearing for the respondent-assessee, submits that in the original Assessment Order dated 10.02.2005, deduction under Section 80IA of Rs.80.55 Crores was allowed. The said assessment order was subjected to review under Section 263 of the Act only insofar as two issues. The Assessing Officer is empowered to pass an order giving effect to revision order under Section 263 and the order of the ITAT only in respect of those two issues subject matter of the order under Section 263.

It is the submission of learned Senior Counsel that under the guise of rectifying the order dated 20.10.2011, the Assessing Officer is attempting to withdraw the benefit under Section 80IA, granted in the order dated 10.02.2005. Hence, the rectification sought to be made is to the order dated 10.02.2005 and not the order dated 20.10.2011 as contended

Having considered the submissions of learned counsel for the parties, there are two assessment orders on record. First, the original assessment under Section 143(3) dated 10.02.2005. Second order is dated 20.10.2011 passed pursuant to the direction of the Commissioner under Section 263 and the order of the ITAT dated 16.05.2008. The assessee has declared income of Rs.246,40,54,707/-. In the original assessment order dated 10.02.2005, the additions were made only in relation to Rs.83,59,608/- towards provision for bad debts. The said order of assessment was subjected to revision under Section 263. The order under Section 263 is in respect of two issues. Firstly, donation of assets of Rs.2,18,08,292/-. Secondly, loss of assets of Rs.2,19,73,292/-.

The deduction claimed by the assessee under Section 80IA in the original return of income was not disturbed in the Assessment Order dated 10.02.2005. Though the Assessing Officer is contending that the mistake has crept in the order dated 20.10.2011, in-effect, the Assessing Officer is attempting to rectify the order dated 10.02.2005. The scope of rectification under Section 154 to rectify the order dated 20.10.2011 cannot go beyond the subject issues of 263 order. Undisputedly, deduction under Section 80IA was not subject matter of either 263 proceedings or in appeal before the ITAT.

In that view, the only inference that can be drawn is that the deduction allowed in the order of assessment dated 10.02.2005 is sought to be rectified under the guise of rectifying the order dated 20.10.2011. As the order sought to be rectified is dated 10.02.2005, the limitation under Section 154(7) is to be reckoned from 10.02.2005. If the limitation of 4 years as prescribed under Section 154(7) is computed from 10.02.2005, the rectification order dated 28.03.2012 is barred by limitation. The ITAT appreciating the order that is sought to be rectified has rightly held that the limitation has to be

In that view of the matter, we find no justification in the contention urged by the revenue. The appeal is meritless and, accordingly, it is dismissed. Substantial questions of law are answered in favor of the assessee and against the revenue.