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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: Shri Rajesh Kumar, AM & Shri Pradip Kumar Choubey, JM]
ORDER
Per Shri Rajesh Kumar, AM
This appeal filed by the assessee is against the order of Ld. Pr. CIT, Kolkata-2 dated 30.03.2024 for AY 2016-17.
The only issue raised by the assessee in the various grounds of appeal is against the order passed by the Ld. Pr. CIT u/s. 263 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) by invoking revisionary power u/s. 263 of the Act revising the assessment framed u/s. 147 read with 143(3) of the Act invalidly.
Brief facts are that the assessee filed its return of income on 30.09.2016 declaring total income of Rs.5,43,81,450/- which was processed u/s. 143(1) of the Act. Thereafter, the case of the assessee was reopened u/s. 147 of the Act by issuing notice u/s. 148 of the Act on 13.03.2018 after recording reasons u/s. 148(2) in which the following expenses were stated to have not been disallowed by the AO and accordingly, the income has escaped assessment: i) Club service/facility - Rs. 79,12,329/- ii) Penalty - Rs. 8,000/- iii) Contribution to Employee’s PF deposited - Rs. 66,26,052/- beyond the due date iv) Unaccounted profit from the sale of tea - Rs.3,61,55,620/- manufactured from purchased tea leaves.
Mcleod Russel India Ltd. AY 2016-17 4. Accordingly, assessment was framed vide order dated 17.03.2022 u/s. 147 read with 144B of the Act. Thereafter, the Ld. Pr. CIT on perusal of the assessment record noticed that the AO while passing the said assessment has not considered the issue of excess managerial remuneration paid to the tune of Rs.138.16 lacs and accordingly, the assessment was framed is erroneous in so far as prejudicial to the interest of the revenue. Accordingly, a notice u/s. 263 of the Act was issued on 19.01.2024 giving a showing cause as to why the assessment should not be revised. For the aforesaid reasons which was replied by the assessee vide written submission dated 27.02.2024 and 20.02.2024 which have been considered by the Ld. Pr. CIT and finally the assessment was revised directing the AO to modify the assessment for making disallowance of Rs.138.16 lacs u/s. 37(1) of the Act on account of excess salary paid to the director which is prohibited u/s. 197(9) of the Companies Act, 2013 after affording reasonable opportunity to the assessee.
The Ld. AR for the assessee vehemently submitted that the jurisdiction u/s. 263 of the Act has been assumed invalidly by Ld. Pr. CIT as the necessary pre-conditions for exercising his jurisdiction was not satisfied. The ld. AR submitted that the assessment framed u/s. 147 read with sec. 144B dated 17.03.2022 was neither erroneous nor prejudicial to the interest of the revenue. The Ld. AR contended that the assessee filed return of income on 30.09.2016 which was processed u/s. 143(1) and by referring to the order passed u/s. 143(1) dated 24.03.2018 submitted that the returned income has been accepted by the AO, CPC. The Ld. AR submitted that thereafter the reopening u/s. 147 of the Act was done by the AO in order to take cognizance of the four items of expenditure as stated above which were wrongly allowed in the computation of income and has escaped assessment and accordingly, the assessment was framed as stated hereinabove. The Ld. AR argued that the issue of excess allowance of salary to the tune of Rs.138.16 lacs was not the subject matter of reopening nor any such issue came across before the AO during the course of reassessment proceeding, therefore, the assessment was framed u/s. 147 read with 144B of the Act is neither erroneous nor prejudicial to the interest of the revenue. The Ld. AR submitted that at the most the Ld. Pr. CIT could have revised the order passed u/s. 143(1) dated 24.03.2018 but the same is barred by limitation in terms of provisions of section 263(2) of the Act after expiry of two years from the end of the financial year in which the order sought to be revised was passed meaning thereby that the revisionary jurisdiction Mcleod Russel India Ltd. AY 2016-17 would have been exercised up to 31.03.2020 whereas in the present case the order has been passed on 30.03.2024 and, therefore, the proceedings are barred by limitation. The Ld. AR in defense of his argument relied on the decision of Hon’ble Bombay High Court in the case of CIT Vs. ICICI Bank Ltd. [2012] 343 ITR 74 (Bom.) and decision of the Hon’ble Supreme Court in the case of CIT Vs. Alagendran Finance Ltd. [2007] 293 ITR 1(SC). The Ld. AR, therefore, prayed that the impugned revisionary order passed by the Ld. Pr. CIT is invalid and may be quashed.
Ld. DR, on the other hand, strongly opposed the contention of the Ld. AR of the assessee by submitting that in terms of Explanation (3) to section 147 of the Act which empowered the AO to 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 proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. The Ld. CIT, DR submitted that when the AO has the power to make addition on any issue which is virgin to the reason recorded then automatically the assessment so framed by the AO overlooking the said addition and the assessment framed u/s. 147 of the Act is inherently erroneous and prejudicial to the interest of the revenue. Accordingly, the Ld. Pr. CIT prayed before the bench that the plea raised by the Ld. AR of the assessee is devoid of any merit and may be dismissed.
We have heard rival submissions and perused the material placed before us. Undisputedly, assessee has filed return of income on 30.09.2016 which was processed u/s. 143(1) accepting the returned income. Thereafter, the case of the assessee was reopened u/s. 147 by issuing notice u/s. 148 on the ground that the four expenses as stated hereinabove was wrongly allowed in the computation of income and thus the income has escaped assessment. Accordingly, the assessment was framed by making addition in respect of above four expenses. Admittedly, the issue of excess salary to the tune of Rs.138.16 lacs was neither subject matter of the reasons recorded u/s. 148(2) nor any such excess disallowance came to the notice of the AO during the course of proceedings subsequently. Therefore, now the issue before is whether the assessment framed u/s. 147 of the Act is erroneous and prejudicial to the interest of the revenue or the Ld. Pr. CIT has no jurisdiction Mcleod Russel India Ltd. AY 2016-17 to revise the said assessment for the reason that the issue wrecked up in the 263 was not the subject matter of the reasons recorded nor it was noticed by the AO in the assessment proceeding. In our opinion, the order u/s. 147 of the Act is neither erroneous nor prejudicial to the interest of the revenue as there is no mistake in the said order and prejudices is caused, we are in agreement with the argument presented before us by the Ld. CIT, DR, the AO has jurisdiction under Explanation (3) to section 147 to make any addition on the issue which were not subject matter of the reasons recorded provided the said issue comes to the notice of the AO during the course of subsequent proceedings. In our opinion, Ld. Pr. CIT could have revised the intimation/order passed u/s. 143(1) dated 24.03.2018. However, the same is barred by limitation as two years from the end of financial year in which the said order was passed have already elapsed on 31.03.2020. The case of the assessee finds support from the decision of Hon’ble Bombay High Court in the case of ICICI Bank (supra) wherein the Hon’ble Court has held as under:
Held, dismissing the appeal, that neither in the first reassessment nor in the second reassessment was any issue raised or decided in respect of the deductions under section 36(1)(vii), (viia) and the foreign exchange rate difference. The order of the Commissioner under section 263(2) had not been passed with reference to any issue which had been decided either in the order of the first reassessment or in the order of second reassessment but sought to revise issues decided in the first order of assessment passed under section 143(3) on March 10, 1999, which continued to hold the field as regards the three issues in question. The order dated March 10, 1999, did not merge with the orders of reassessment in respect of issues which did not form the subject matter of the reassessment. Consequently, Explanation 3 to section 147 would not alter that position. Explanation 3 only enables the Assessing Officer, once an assessment is reopened, to assess or reassess the income in respect of any issue, even an issue in respect of which no reasons were indicated in the notice under section 148(2). This, however, will not obviate the bar of limitation under section 263(2). The invocation of the jurisdiction under section 263(2) as barred by limitation.
Similar issue has been decided by the Hon’ble Apex Court in the case of Alagendran Finance Ltd. (supra) wherein the Hon’ble Court has held that reassessment proceedings culminating to do with the items of income which was sought to be raised by Pr. CIT by revising the order of assessment which relate to Lease Equalisation Fund. The Hon’ble Apex Court held that the doctrine of merger did not apply to a case of this nature and the period of limitation commenced from the date of original assessment and not from the date of reassessment since the latter had not had anything to do with the Lease Equalisation Fund. The Hon’ble Apex Court have further held that this was not a case where the subject matter of reassessment and the subject matter of the assessment were the same. Accordingly, considering the facts and circumstances before us in the light of aforesaid Mcleod Russel India Ltd. AY 2016-17 reasons, we are inclined to hold that the order passed by the ld. Pr. CIT u/s. 263 of the Act is invalid and is accordingly quashed. Appeal of the assessee is allowed.