AARTI INDUSRIES LTD,MUMBAI vs. PR CIT 15, MUMBAI

In the Memo of appeal, assessee has raised varied Grounds challenging the impugned order of the Commissioner, but a preliminary issue has been raised contending that the impugned order passed by the Commissioner was void-ab-initio. In order to appreciate the preliminary issue, the relevant facts are as follows. The appellant is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of manufacture of organic and inorganic chemicals and intermediates. For Assessment Year 2009-10, it filed a return of income on 30.9.2009 declaring a total income of Rs.79,54,12,239/-, which was subsequently revised on 29.7.2010 declaring total income at Rs.78,36,54,799/-. The return of income so filed was subject to a scrutiny assessment and in an assessment finalised u/s 143(3)(ii) of the Act dated 14.1.2013, the total income was assessed at Rs.95,21,13,910/- after making various disallowances/additions. Pertinently, the said income was determined after allowing a claim for deduction u/s 80IA of the Act amounting to Rs.3,56,77,992/-. Since the issue before us relates to the claim of deduction u/s 80IA of the Act, therefore, the other additions/disallowances made in the assessment are not being referred by us. Furthermore, it is seen that subsequently the assessment was reopened by issuance of notice u/s 148 of the Act dated 31.3.2016 on the basis of certain information whereby assessee was found to have booked bogus expenditure of Rs.30,71,856/- in the form of payments of Commission and Brokerage. As a consequence, an assessment u/s 143(3) r.w.s. 147 of the Act dated 30.9.2016 was finalised whereby the bogus expenditure of Rs.30,71,856/- was added to the income already assessed in the assessment order dated 14.1.2013 (supra) of Rs.95,21,13,910/-, and the total income was assessed at Rs.95,51,85,770/-.

In this background, the Commissioner issued a show cause notice u/s 263 of the Act dated 27.2.2017 requiring the assessee to show cause as to why the assessment order dated 30.9.2016 (supra) passed u/s 143(3) r.w.s. 147 of the Act should not be revised or cancelled or modified within the meaning of Sec. 263 of the Act inasmuch as the claim of deduction u/s 80IA of the Act was allowed in excess. The impugned order of the Commissioner briefly summarises the submissions put forth by the assessee before him in para 4 which, inter- alia, contains an assertion that since the issue relating to the claim of deduction u/s 80IA of the Act was not a subject matter of the reassessment order passed u/s 143(3) r.w.s 147 of the Act, the same could not be a subject matter of revision u/s 263 of the Act. Notably, the Commissioner has not negated the factual assertion of the assessee that the claim of deduction u/s 80IA of the Act was not the scope of the reassessment proceedings, but he has justified the invoking of Sec. 263 of the Act on the ground that in the absence of non-examination by the Assessing Officer about the correctness of the claim made u/s 80IA of the Act, the assessment was finalised with no application of mind by the Assessing Officer. Accordingly, the Commissioner cancelled the assessment order dated 30.9.2016 (supra) passed u/s 143(3) r.w.s. 147 of the Act and directed the Assessing Officer to pass a fresh assessment order wherein he was required to examine the details of the deduction claimed u/s 80IA of the Act and allow the same in accordance with the provisions of the Act.

In this background, the first and the foremost preliminary point raised by the learned representative is that in the original order of assessment passed u/s 143(3) dated 14.1.2013 (supra), the assessee’s claim relating to Sec. 80IA of the Act was accepted and thereafter the order of reassessment u/s 147/148 of the Act was initiated only in respect to the bogus expenditure on account of Commission and Brokerage and accordingly, the reassessment was made on 30.9.2016 (supra) after adding the aforesaid amount to the income already assessed vide order dated 14.1.2013 (supra). The learned representative relied upon the judgment of the Hon'ble Supreme Court in the case of Alagendran Finance Ltd., 293 ITR 1 (SC) to point out that in this view of the matter, so far as the issue of claim of deduction u/s 80IA is concerned, the period of limitation prescribed in Sec. 263(2) of the Act commences from the date of the original assessment order dated 14.1.2013 (supra) and not from the reassessment order dated 30.9.2016 (supra) as the reassessment had nothing to do with the claim of deduction u/s 80IA of the Act. It was, therefore, contended that the reassessment order dated 30.9.2016 (supra) could not be made a subject matter of revision u/s 263 of the Act on the issue of claim of deduction u/s 80IA of the Act since the said issue remained concluded in the original assessment dated 14.1.2013 (supra) and was not a subject matter of reassessment. On this aspect, reliance has also been placed on the judgment of the Hon'ble Bombay High Court in the case of Ashoka Buildcon Ltd., 325 ITR 574 (Bom).

On the other hand, the ld. CIT-DR appearing for the Revenue has primarily defended the order of the Commissioner by placing reliance on the discussion therein. The ld. CIT-DR has reiterated that the claim u/s 80IA has been granted by the Assessing Officer without examining the correctness of the same and that the original assessment order dated 14.1.2013 (supra) merged with the reassessment order passed on 30.9.2016 (supra) u/s 143(3) r.w.s. 147 of the Act and, therefore, the Commissioner was justified in invoking the revisionary power contained in Sec. 263 of the Act qua the reassessment order even on the issue of claim of deduction u/s 80IA of the Act.

We have carefully considered the rival submissions. Factually speaking, it is quite clear that in the instant case, the Commissioner has sought to revise the reassessment order dated 30.9.2016 (supra) passed u/s 143(3) r.w.s. 147 of the Act only with respect to the claim of deduction u/s 80IA of the Act; so however, it is undeniable that the proceedings for reassessment u/s 147 of the Act had nothing to do with the said item of income. Evidently, as the reassessment order dated 30.9.2016 (supra) reveals, the issue therein related to bogus expenditure in the form of payment of Commission and Brokerage and had nothing to do with assessee’s claim for deduction u/s 80IA of the Act, which stood concluded in the original assessment order dated 14.1.2013 (supra) passed u/s 143(3) of the Act. The aforesaid fact- situation is not in dispute and is indeed emerging from the material on record. Since the reassessment proceedings had nothing to do with the claim of deduction u/s 80IA of the Act, the proposition of law laid down by the Hon'ble Supreme Court in the case of Alagendran Finance Ltd. (supra) is triggered and clearly limits the power of the Commissioner to revise the reassessment order dated 30.9.2016 (supra) on the issue of claim of deduction u/s 80IA of the Act. Considered in that light, the impugned order passed by the Commissioner is beyond the period stipulated in Sub-section (2) of Sec. 263 of the Act qua the issue of claim of deduction u/s 80IA of the Act. In fact, the Hon'ble Bombay High Court in the case of Ashoka Buildcon Ltd. (supra) has also considered a similar situation. In the case before the Hon'ble High Court, notice u/s 263 of the Act was issued by the Commissioner on issues not related to the grounds on which the original assessment was reopened and reassessed u/s 147/148 of the Act. The Hon'ble High Court opined that in such a situation, the limitation to invoke the revisionary power u/s 263 of the Act starts from the date of original assessment and not the reassessment order passed u/s 147/148 of the Act since the issue of revision was not forming part of the order of reassessment. As per the Hon'ble High Court “On items which do not form part of the reassessment, the original assessment continues to hold the field.” Therefore, according to the Hon'ble High Court, “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 run 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 issues 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.”

In view of the aforesaid, we, therefore, do not find any merit in the plea of the ld. CIT-DR that the original assessment is understood to be merged with the reassessment because fairly speaking the impugned issue of claim of deduction u/s 80IA of the Act was not a part of the reassessment proceedings, and to that extent the original assessment cannot be said to have merged with the reassessment order, following the ratio of the judgment of the Hon'ble Supreme Court in the case of Alagendran Finance Ltd. (supra).

In conclusion, therefore, having regard to the facts and circumstances of the case, and in view of the judgment of the Hon'ble Supreme Court in the case of Alagendran Finance Ltd. (supra) and that of the Hon'ble Bombay High Court in the case of Ashoka Buildcon Ltd. (supra), the impugned action of the Commissioner is not sustainable. In other words, having regard to the fact that the Commissioner has invoked his jurisdiction u/s 263 of the Act only in relation to the claim of deduction u/s 80IA of the Act, which was not a subject matter of reassessment proceedings, the period of limitation prescribed in Sub- section (2) of Sec. 263 of the Act is to be reckoned from the date of original order of assessment dated 14.1.2013 (supra) and not from the order of reassessment dated 30.9.2016 (supra), as done by the Commissioner. Therefore, in this view of the matter, invoking of revisionary power u/s 263 of the Act by the Commissioner on the issue of claim of deduction u/s 80IA is impermissible and beyond the period stipulated under the Act. Thus, on this aspect itself, we set-aside the impugned order of the Commissioner and allow the appeal of the assessee.

Resultantly, appeal of the assessee is allowed.