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Section 263 ITAT DELHI on May 14, 2020 Issues subject to revision u/s 263 were pertaining to original assessment u/s 143(3) and not the reopened assessment u/s 147; the limitation should also start from the original assessment. In this case as original assessment order u/s 143(3) of the act was passed on 16.01.2014, the revision thereof could have been taken up to 31.3.2016. Impugned order u/s 263 of the act was passed on 26/2/2019, therefore it is clearly beyond the limitation prescribed u/s 263 (2) of the act. JINDAL STEEL & POWER LTD. vs. PCIT

 

para 14

“14. Admittedly in the present case the case of the assessee which was earlier assessed by the order passed by under section 143 (3) of the income tax act on 16/01/2014 which was passed in pursuance of the draft assessment order subject to the direction of The Dispute Resolution Panel. Therefore if any issue which is found not have been dealt with or erroneously dealt with by the Ld AO and if it is subject to revision u/s 263 of the act, than the requisite action should have been concluded by 31.03.2016 [i.e. within two years from the end of the year in which order was passed.] as in the impugned case assessment order was passed in FY 2013 – 2014.Impugned order us/ 263 of the act was passed on 26/02/2019.”

Para 15

“15. Subsequently, the learned assessing officer recorded the reason for reopening of the assessment which is provided to the assessee on 29/6/2016 by The Deputy Commissioner Of Income Tax. Such reasons captioned are already reproduced above. It is apparent that case of the assessee was reopened to examine the deduction u/s 80 IA and 80 IB of the act as assessee claimed the same on power plant used for captive consumption and further it was not maintaining allegedly separate books of accounts of the eligible undertaking. Thus the issue of production of coal mines was not at all an issue in reopened assessment proceedings. The precise issues for which an action u/s 263 isinitiated are for assessing the income of the assessee on account of showing the alleged incorrect production as per M B Shah Report. Actions u/s 263 of the act is not initiated for claim of deduction of the assessee u/s 80 IA or 80 IB of the act. Therefore the issue for which revision u/s 263 is proposed is not the issue for which case of the assessee was reopened u/s 147 of the act. Thus it is apparent that action u/s 263 of the act is initiated for the issues which are already decided in the original assessment u/s 143 (3) of the act and not in reopened assessment. Therefore in such circumstances, if Ld. PCIT wants to touch any issue of the original assessment order, the time limit for passing the order us/ 263 of the act should run from the date of the original order passed u/s 143(3) of the act and not the subsequently reopened assessment order u/s 147 of the act.”

 

JINDAL STEEL & POWER LTD. vs. PRINCIPAL COMMISSIONER OF INCOME TAX

IN THE ITAT DELHI BENCH ‘C’

PRASHANT MAHARISHI, AM & K N CHARRY, JM.

ITA No. 4607/Del/2019                                  May 14, 2020

Section 263                                                     AY 2009-10

Decision in favour of:                                     Assessee

 

Cases Referred to

1.Majinder Singh Kang vs CIT 344 ITR 358 (Punjab & Haryana)
2.Sumati Dayalvs, CIT 124 ITR 801)
3.Gee Vee Enterprises v. Addl. CIT [1975] 99ITR 375 (Delhi)
4.Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC)
5.Smt. Tara Devi Aggarwal v. CIT (1973) 88 ITR 323 (SC)
6.CIT V Alagendran Finance Ltd [293 ITR 1]
7.1CIT versus Bharati Airtel Ltd (2013) [218 taxman 112]
8.CIT versus Sriram engineering construction Co Ltd [330 ITR 568
9.LG electronics India private limited versus Principal Commissioner of Income Tax [388 ITR 135]
10.Asoka Buildcon Ltd versus PCIT [325 ITR 574]
11.CIT versus Lark chemicals Ltd [230 taxman 305]
12.CIT versus ICICI bank Ltd [343 ITR 74]
13.CIT V Algandrean Finance Limited [(2007) 75 CCH 0720 ISCC(2007) 211 CTR 0069, (2007) 293 ITR 0001, (2007) 162 TAXMAN 0465
14.INDIRA INUDSTRIES vs. PCIT (2018) 102 CCH 0078 (ChenHC) (2018) 169 DTR 0171 (Mad), (2018) 305 CTR 0314 (Mad)
15.LG ELECTRONICS INDIA PVT. LTD. vs. PCIT (2016) 96 CCH 0284 AllHC, (2016) 143 DTR 0105 (All), (2016) 290 CTR 0283 (All), (2016) 388 ITR 0135 (All)

 

Counsel appeared:

Raman Chopra[CIT] – DR for the Revenue.: Salil Kapoor, Adv.; Sunit Lal; Chandani, Advs.; Ananya Kapoor, Adv. for the Assessee

 

PRASHANT MAHARISHI, AM.

 

01 This appeal is filed by assessee, M/s Jindal steel and Power Ltd (Assessee, Appellant) against the order u/s 263 of The Income Tax Act, 1961 [The Act] dated 30/3/2019 for Assessment Year 2009 – 10 passed by The Principal Commissioner of Income Tax, Gurgaon holding that assessment order passed u/s 143 (3) read with section 147 of The Act dated 30/12/2016 passed by The Deputy Commissioner of Income Tax, Circle – 1 (1), Gurgaon (The Learned Assessing Officer, AO) is erroneous and prejudicial to the interest of the revenue.

02 The assessee raised following grounds of appeal.

 

“1. That on the facts and circumstances of the case and in law, the impugned order dated 30.03.2019 passed by the Pr. Commissioner of Income Tax (“PCIT”) under section 263 of the Income-tax Act, 1961 (‘the Act’) is beyond jurisdiction, illegal and bad in law and is liable to be quashed.

 

2. That the Pr. CIT erred in initiating proceedings under section 263 of the Act on the basis of an draft order which was passed in contravention of the mandate as per the High Court direction vide order dated 06.12.2016 and hence was void ab initio and as such no proceedings could have been initiated on the basis of an invalid/illegal order.

 

3. That on the facts and circumstances of the case and in law, the order passed by the PCIT u/s 263 of the Act is a premature order, in as much was is no order capable of being revised.

 

4. That without prejudice to the above grounds the AO ought to have considered that once a reference u/s 92CA(1) of the Act was made in the original proceedings to the Transfer Pricing Officer, it was incumbent upon him to pass a draft assessment order instead of passing a final assessment order dated 30.03.2019 failing which the entire assessment proceedings and all consequential proceedings are invalid, non-est and void ab initio.

 

5. That on the facts and circumstances of the case and in law, the impugned order passed by the PCIT is illegal and bad in law, being barred by limitation prescribed under section 263(2) of the Act.

 

6. That on the facts and circumstances of the case in law, since the reassessment order dated 30.12.2016 sought to be revised was patently without jurisdiction, impugned revisionary proceedings were also without jurisdiction, illegal and bad in law.

 

7. That on the facts and circumstances of the case and in law, the impugned order passed under section 263 of the Act, without appreciating that the twin conditions of that section viz., assessment order being erroneous as well as prejudicial to the interests of the Revenue, were not satisfied, is illegal and bad in law.

 

8. That on the facts and circumstances of the case, the impugned order passed by the PCIT without considering the reply and objections of the Assessee, is illegal and bad in law.

 

9. That on the facts and circumstances of the case and in law, the PCIT erred in holding that reassessment order dated 30.12.2016 passed under section 147/143(3), was erroneous and prejudicial to the interests of the Revenue on the issue of examination of quantum of production/ mined quantities of iron ore recorded in books of accounts, having regard to some report of Justice MB Shah Commission on illegal mining issued in June, 2013.
10. That the PCIT exceeded his jurisdiction in setting aside the reassessment order on issue of examination of quantum of production/ mined quantities of iron ore, despite the fact that the said issue was not at all subject matter of reassessment proceedings.

 

11. That the PCIT erred in setting aside the reassessment order on aforesaid issue on vague/ general ground for examination of quantum of production/ mined quantities of iron ore, without pointing out the error, much less prejudice, in the earlier assessments.

 

12. That in the facts and circumstances of the case the impugned order is illegal and bad in law as no independent inquiry has been carried out by the PCIT.”

 

03 The brief facts of the case show that that assessee is a company. It filed its original return of income at INR 1006679810/- on 30/9/2009. This was later revised at INR 9873115970/-. The draft assessment order u/s 144C read with section 143 (3) of the act was passed on 29/1/2013. On objections filed before the learned Dispute Resolution Panel – III, [ The Ld. DRP] same were disposed of by issuing direction u/s 144C (5) of The Income Tax Act 1961 on 31/12/2013. Final order u/s 144C read with section 143 (3) of the act was passed on 16/1/2014 with an assessed income of INR 13221335445/-.

 

04 Subsequently, reasons were recorded by the learned Assistant Commissioner of Income Tax, Circle – 1, Gurgaon and case was reopened. Assessee sought reasons recorded. Same were provided on 29/6/2016.Against which assessee filed an objection on 19/8/2016. Objections were disposed of on 25/11/2016. Assessee aggrieved with the initiation of reassessment proceedings filed the petition before Honourable Punjab and Haryana High Court in civil writ petition number 25150/2016. Per order, honourable High Court held that reassessment proceedings may continue and if the order passed by the assessing officer is adverse to the petitioner, it shall not be implemented till further orders. Honourable High Court clarified that passing of the order would not prejudice the maintainability of petition including any of the contentions raised therein.

 

05 Based on this, learned assessing officer passed an order u/s 143 (3) read with section 147 of The Act on 30/12/2016 determining the total taxable income of the assessee at INR 15925132093/- against the original assessed income u/s 143 (3) read with section 144C of The Act dated 16/1/2014 of INR 132213435445/-. The learned assessing officer disallowed two deductions; (1) deduction u/s 80 IA of the income tax act of Rs. 2526331398/- and (2) deduction u/s 80 IB of the Act of INR 1 77565250/-.

 

06 Thereafter, Ld. PCIT examined the records. On examination, he issued notice u/s 263 of the income tax act on 26/2/2019 asking assessee to show cause that why order passed u/s 143 (3) on 30/12/2016 passed by the learned assessing officer is not ‘erroneous and prejudicial to the interest of revenue’. The reasons for the such error was that as per the volume II/A of the Justice M B Shah commission of enquiry, report on illegal mining of Iron Ore manganese dated June 13, page number 35, the production of the assessee for the financial year 2008 – 09 (relevant to assessment year 2009 – 10) has been 2205780 metric ton from TRB Iron Ore Mines. During assessment proceedings, AO did not make specific enquiries to ascertain whether the production as mentioned in the justice Shah commission of enquiry report from the TRB mines has been duly incorporated in the books of accounts of the assessee for the relevant assessment year as per the judgment of the honourable Punjab and Haryana High Court in Majinder Singh Kang V CIT 344 ITR 358. So it was stated in show cause notice that it is clear that the order passed by the AO in this case is ‘erroneous and prejudicial’ to the interest of revenue. Therefore, assessee was provided an opportunity to show cause as to why the assessment order passed by The Deputy Commissioner Of Income Tax, Circle – 1 (1), Gurgaon dated 30/12/2016 for the impugned assessment year should not be revised u/s 263 of the income tax act.

 

07 The assessee submitted its reply by letter dated 18/03/2019 stating that present revision of the proceedings are barred by limitation having regard to time limit prescribed under section 263 of the act. It was also stated that the revisionorder, if at all, should be confined only to the issues arising out of reassessment order dated 16/1/2014 and not beyond that. It was further stated that since the assessment order dated 30/12/2016 was neither ‘erroneous not prejudicial to the interest of the revenue’ the issues raised in the present revision proceeding initiated under section 263 of the act are without jurisdiction, illegal and bad in law. Since the reassessment proceedings under section 147 of the Act itself are only without jurisdiction, illegal and bad in law, the consequential revision of the proceedings under section 263 of the act is also without jurisdiction, illegal and bad in law. It was further stated that since the reassessment order under section 147 sought to be revised, itself is pending before Punjab and Haryana High Court for adjudication and as per the interim order of the honourable High Court the same should not be ‘implemented’. Therefore, the order which cannot be implemented cannot be held to erroneous and prejudicial to the interest of revenue as it does not exist at all.

 

08 Thereafter, on 30 March 2019, the learned Principle Commissioner Of Income Tax passed order under Section 263 of the Income Tax, 1961, as under:

 

“Order under section 263 of the Income Tax Act, 1961

 

In this case, the assessee furnished its return for the A.Y.2009-10, and completed at an income of Rs. 1592,51,32,093/-. The case was selected for scrutiny through CASS. Assessment in this case was completed under section 143(3) r.w.s. 147 of the IT Act 1961 vide order dated 30.12.2016.

 

On perusal of the case records, it is seen that the Assessing Officer failed to make am specific inquiries about the finding of Justice MB Shah commission of Inquiry report. As per page number 35 of Volume 11/A of the justice MB Shah commission of Inquiry report on Illegal Mining of Iron ore &Managanese dated June 2013 (enclosed as annexure- 2). the production of assessee for the F.Y.2008-09 (relevant to A.Y.2009-10 has been 22.05.780 MT from I RB iron ore mines whereas the assessee shown the sake as 22.01.870 MT.

 

As per the Judgement of Honourable Punjab and Haryana High Court in Majinder Singh Kang vs CIT 344 ITR 358 (Punjab & Haryana).

 

“A plain reading of Explanation 3 to section 117 clearly depicts that the Assessing Officer has power to make additions even on the ground on which reassessment notice might not have been issued during reassessment proceedings, hut he arrives at a conclusion that such other income has escaped assessment which comes to his notice during course of proceedings of reassessment under section 148. The provision no where postulates or contemplates that it is only when there is some addition on the ground on which reassessment had been initialed, that the Assessing Officer can make additions on any other ground on the busts of m huh mi mm nun have escaped assessment. “

 

The assessing officer failed to make specific inquiry to ascertain whether the production mentioned in the Justice MB Shah Commission of Inquiry report from TRB iron Ore Mines has been incorporated in the books of the assesses- for the relevant assessment year. As the point was not verified by the A O, the order passed by the AO has been erroneous and prejudice to the interest of revenue.

 

The assessment records of the aforesaid assessee for the A. Y.2009-10 were examined. On perusal the order made by the A.O. u/s 143(3) r.w.s. 147 dated 30.12.2016 it was found that the assessment order passed by the assessing officer is erroneous and pre-judicial to the interest of Revenue.

 

Accordingly, the assessee was issued with a notice u/s 263 of the IT Act, 1961 dated 27.02.2019 as why the assessment order of the assessing officer should not be set aside being erroneous and pre-judicial to revenue. Mr Sanjay Jain. (‘A attended the proceedings on 20.3.2019 and submitted reply which has been considered with due care.

 

In the reply, it is also submitted that the assessment order is neither erroneous nor prejudicial to the interest of revenue and therefore the notice is invalid, illegal. The reply also contains various case laws, which have been considered carefully, it is found that the facts of the case laws are not exactly same as that of the instant case.

Hence, having considered the case laws; reply of the assessee and having gone through the record of the assessee regarding the legal and factual contentions on the validity of taking action u/s 263 of the Income Tax Act, 1961. In this regard, it is pertinent to keep in view the following issues and observation on the basis of which findings are being made.

 

On going through the provisions of section 263(1) of the Income Tax Act, 1961, It is clear that any order passed by the Assessing Officer can be revised if it is found to be erroneous in so far as it is prejudicial to the interest of revenue. It is, therefore, clear that the provisions of the Income Tax Act. 1961 gives authority u/s 263 of the Income lax Ac. 1961 to revise any order passed by the Assessing Officer.

 

With regard to the issue of examining of records, on the basis of which the revision can be undertaken by u/s 263 of the Income Tax Act. 1961, as Para explanation-1(b), the following provisions have been made:-

 

“record (shall include and shall be deemed always m have included] all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or] Commissioner;”. It is therefore, clear that the revision can take place on the basis records available at the time of examination by the Pr. Commissioner or Commissioner.

 

The counsel/Authorised representative filed the reply wherein the AR submitted that the shares were issued and received the share premium as discussed above. It is also submitted that the assessee company had furnished all necessary details & documents in respect of the share capital raised by it such as name, address. PAN of the Share applicants etc. there was no need of further enquiry. The AO has made inquiries and accepted the same. The ld AR submitted that in the light of his discussion, the provisions of section 263 should not be invoked, as it was accepted by ld AO after verifying necessary documents.

 

I have considered the various case laws quoted by ld. AR. it is found that the u of the case laws are not exactly related to the instant case. Perusal of the assessment records shows that the A.O. has no. made any independent inquiries have been made and questioned about the incorporation of above facts in the books of accounts of the assessee for the relevant assessment year. Since, the assessing officer has failed to verify the inquiry report recommendations; the order so passed by the AO has been erroneous and prejudicial to the revenue.

 

The Apex Court in the case of Sumati Dayalvs, CIT 124 ITR 801) held that the true nature of a transaction has to be ascertained in the light of surrounding circumstances. Thus, it is now well settled that tax authorities are entitled to look into surrounding circumstances to find out the reality of a transaction by applying the test of human probability. Reliance is also placed on the Hon’ble Punjab and Haryana High Court in the case of Sh. Harjit Kaur Vs. ACIT ITA 280 of 2013. Relying upon the case of M/s Chandigarh Theatres Pvt. Ltd. In IIA No 715/Chandi/2007 and CIT Vs. Nova Promoters ft Finlcase (P.) Ltd. the A O is to check Whether the transaction is merely accommodation entries and whether it is non genuine.

 

In this regard, it may also be noted that the Hon’ble Delhi High Court in Gee Vee Enterprises v. Addl. CIT [1975] 99ITR 375 (Delhi) has observed as under:-

 

“The reason is obvious. The position and function of the Income-lax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of un rebuttal The civil court is neutral It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator hut also an investigator. He cannot remain passive in the face of a ret inn which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts slated in the return when the circumstances of the case are such as to provoke an inquiry The meaning to he given to the word “erroneous” in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when .circumstances would make such an inquiry prudent that the word “erroneous” in section 263 includes the failure to make such an inquiry The order becomes erroneous because such an inquiry has mu In mi made and not because there, is anything wrong with the order if all the facts staled therein are assumed to be correct.”

 

In the said judgment. Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and Smt. Tara Devi Aggarwal v. CIT (1973) 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. After reference to these two decisions, the Delhi High Court observed:-

 

“These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-lax Officer should have made further inquiries before accepting the statements made by the assessee in his return.”

 

In view of the above facts and circumstances of the case. I am of the confirmed view that the A.O. by not pursued the inquiries to their logical end has made the order erroneous and prejudicial to the interest of revenue. Hence the same deserves to be revised u/s 263 of 1.1. Act. 1961. Therefore, the said order passed by the Assessing Officer is set aside on this particular issue only. The assessing officer is directed to pass fresh assessment order after making thorough and detailed inquiries on this particular issue only. The assessing officer should pass a speaking order after providing adequate opportunity to the assessee.

(Krinwant Sahay)

Principal Commissioner of Income Tax Gurgaon”

[Bold supplied by us]

 

09        Thus this order is under challenge before us. The arguments of the assessee are culled out as under :-

 

27. The learned Authorized Representative submitted that the order passed by the learned PCIT is not sustainable in law for the reason that assessment u/s 143(3) of the Act, which was subject matter of revision by the learned PCIT is barred by limitation u/s 263 of the Act. He submitted that notice dated 27.02.2019 was issued u/s 263 of the Act culminated into the order u/s 263 of the Act on 30.03.2019 and the impugned order which was revised was passed u/s 147 of the act on 30.12.2016. He submitted that reassessment proceedings were initiated for separate reasons. He referred to the reasons recorded under Section 148 of the Act dated 29.06.2016 and submitted that the claim of deduction u/s 80IA and 80IB which talks that captive power plant does not qualify as an ‘industrial undertaking.’ Further, no separate books of accounts were maintained. He, therefore, submitted that reopening of the assessment was made for these purposes, whereas the revision is proposed of the reassessment order on altogether different grounds, which were not part of the reasons for reopening of the assessment. He submitted that as the issues on which revision is sought were not at all the reasons for which assessment was reopened. Therefore limitation for passing order u/s 263 of the act on the issues which were not part of reassessment proceedings, should run from the original order passed u/s 143 (3) of the act dated 31-12-2013. He submitted that the above issue is squarely covered by the decision of the Hon’ble Supreme Court in CIT V Alagendran Finance Ltd [293 ITR 1]. He further relied upon the decision of the honourable Delhi High Court in case of CIT versus Bharati Airtel Ltd (2013) [218 taxman 112] , CIT versus Sriram engineering construction Co Ltd [330 ITR 568[, LG electronics India private limited versus Principal Commissioner of Income Tax [388 ITR 135] and Indra Industries versus PCIT (2018) [95 taxman.com 103].
28. His main plank was that PCIT under section 263 could not have sought to revise an order passed under section 147 read with section 143 (3) of the act on an issue which was not a subject matter of the reassessment proceedings under section 147 at the first place and it is beyond jurisdiction under section 263 of the act. The impugned order loses its validity on this count itself. He further relied on the decision of the honourable Bombay High Court in case of Asoka Buildcon Ltd versus PCIT [325 ITR 574], CIT versus Lark chemicals Ltd [230 taxman 305] and CIT versus ICICI bank Ltd [343 ITR 74]. He further submitted that on the issues raised in the present revisionary proceedings, limitations to pass revisionary order has to be, if at all, should be counted from the original assessment order dated 16/1/2014 passed under section 143 (3) of the act which already expired on 31/3/2016. Therefore, he submitted that the order passed under section 263 of the act is barred by limitation and thus the present proceedings are liable to be dropped on this preliminary ground itself.

 

III.       He further stated that since the ‘implementation’ of the reassessment order itself stands stayed by the honourable High Court vide an interim order dated 6/12/2016, any proceeding arising there from is premature, illegal, bad in law and without jurisdiction.

 

1. He submitted that even otherwise the reassessment order is neither erroneous and nor prejudicial to the interest of the revenue as the twin conditions are not satisfied. He also relied upon several judicial precedents for the same.

 

1. He relied upon the fact that merely because of the reason that the learned assessing officer did not carry out the inquiries as envisaged by the learned CIT – A, it cannot make the order erroneous. He relied upon the decision of the coordinate bench in case of Narayan Tatu Rane V ITO [70 taxman.com 227].

 

1. He further submitted that even otherwise the reliance on reference to Justice Shah commission report in the notice is improper and not want warranted for the reason that commission
2. did not issue any notice to the assessee,
3. giving it a reasonable opportunity of hearing or

iii.        to produce evidence in their defense or

1. to cross examine witnesses before the commission or
2. put forth the representation of the assessee.

 

Therefore, the Commissions violated the principles of natural justice. For this proposition he referred to the decision of the honourable High Court in order dated 9/7/2019 in case of Sesa Sterlite Ltd versus ACIT where a similar position has been taken and held that issuance of notice under section 147 read with section 148 on the basis of the Shah Commission report is illegal.

 

VII.     Even otherwise, he submitted that the notice issued by the learned Principal Commissioner of Income Tax did not grant proper opportunity of hearing to the assessee. He stated that notices were issued on 27/2/2019 which was revised on 8/3/2019, for which the time limit was expiring on 31/3/2019, where the assessee was asked to furnish its reply by 6/3/2018. He submitted that while passing the order under section 263 of The Income Tax Act there is no reference on the issue raised by The Principal Commissioner of Income Tax while issuing the revision proceedings order.

 

VIII.    He further referred to the page number 3 of the order wherein the learned Principal Commissioner Of Income Tax has mentioned that some Mr. Sanjay Jain has filed the reply stating that assessee has furnished all necessary details and documents in respect of share capital raised by it such as name and address and PAN of share applicants. He submitted that there is no such issue involved in this matter and therefore the order passed by The Principal Commissioner of Income Tax is patently illegal, bad in law and same is liable to be quashed.

 

1. He further submitted that the principal Commissioner has not given any finding as to how and in what manner the order of the ld AO on the various issues noted in its order under section 263 was erroneous and prejudicial to the interest of the revenue. Thus, he stated that the order passed by the learned Principal Commissioner of Income Tax is premature, illegal, and bad in law and without jurisdiction.

 

10        The learned CIT DR vehemently supported the order of the learned Principal Commissioner Of Income Tax. He submitted that :-

1. He referred to the notice dated 26/2/2019 which clearly mentions that the production of the assessee for the financial year 2008 – 09 has been 2205780 metric ton from TRB Iron Ore Mines and during the course of assessment proceedings no specific inquiries were made to ascertain whether the production as mentioned in the enquiry committee report has been duly incorporated in the books of account of the assessee. He therefore submitted that the order passed by the learned assessing officer is correctly held to be anerroneous and prejudicial to the interest of the revenue.

 

1. He further referred that in the impugned order the learned principal Commissioner has applied his mind which is clearly demonstrated at paragraph number [3] of the page number [3] of the order where he has considered the various judicial precedent quoted before him and found that the content and facts of those case laws are not exactly related to the instant case.

 

iii. Further, he submitted that ld PCIT on perusal of the assessment records clearly held that records show that the AO has not made any independent inquiries and questioned about the incorporation of the above facts in the books of accounts of the assessee for the relevant assessment year. It has been categorically held that since the assessing officer has failed to verify the enquiry report recommendations the order so passed by the AO has been erroneous and prejudicial to the interest of the revenue.

 

1. He submitted though in certain paragraph there are certain references which do not relate to the case of the assessee but that does not invalidate the order passed by the learned principal Commissioner of income tax. He submitted that there may be some typographical errors, but clear-cut finding in the order about lack of inquiry by AO shows that there is proper application of mind by PCIT.

 

1. He further referred to the introduction of explanation[2] in section 263 of the income tax act with effect from 1 June 2015 wherein it has been held that when an order is passed without making enquiries or verification which should have been made is an order erroneous insofar as it is prejudicial to the interest of the revenue. He therefore submitted that in the present case there is no enquiry made by the learned assessing officer on the commission’s report and therefore there is no infirmity in the order of the learned principal Commissioner of income tax and revising that order.

 

1. With respect to the issue not raised in 147 proceedings, he submitted that it does not bar the principal Commissioner of income tax in revising the issue as when the assessment is reopened, the whole assessment becomes open and it cannot be said that in 263 proceedings any other issue which is not covered in 147 proceedings cannot be touched upon by the principal Commissioner. Thus the limitation of passing order u/s 263 of the act cannot be from the original order passed u/s 143 (3) of the act but from the date of order passed u/s 147 rws 143(3) of the act.

 

vii. He also submitted that issues even otherwise, in 147 proceedings are related to the computation of deduction u/s 80 IA and 80 IB of the act, the lesser productions shown by the assessee as Shah Commission’s report also deals with the same. He also submitted that assessee has not maintained separate books of accounts therefore it cannot be said that what the actual production is shown by the assessee on which deduction is claimed. Thus, the issue in reopened proceedings as well as revisionary proceedings is same and both relate to the computation of income of the assessee.

 

11. In the end, he vehemently supported the order of The Principal Commissioner of Income Tax passed under section 263 of The Income Tax Act.

 

12. We have carefully considered the rival contention. In the present case, the assessee filed its return of income on 30-9-2009. Ld AO passed draft assessment order on 28-03-2013. Assessee filed objections before DRP and thereafter the order u/s 143 (3) of the act was passed on 16-01-2014. This order was challenged before ITAT and order in ITA no 893 of 2014 was passed on 29-04-2019. Subsequently, the ld AO issued notice u/s 148 of the act on 31/3/2016 recording following reasons.

 

ANNEXURE ‘A’

 

The assessee, M/s Jindal Steel & Power Ltd furnished return of Income for A.Y. 2009-10 on 29.11.2011 u/s 139 (1) of the Income Tax Act, 1961, showing total income at Rs.1006,66,79,810/-. Further the assessee filed a revised return u/s 139 (5) of the Income Tax Act 1961, showing total taxable Income at Rs. 987,31,790/- 29.03.2013. The draft assessment order u/s 144C r.w.s. 143 (3) of the Income Tax Act, 1961 was passed by the AO on 29.01.2013. The final order u/s 144C r.w.s. 143 (3) of the Income Tax Act, 1961 was passed by the A.O. on 16/01/2014 determining the total income at Rs.13,22,13,35,445/-.

 

2. From perusal of the records for A.Y. 2009-10, it has been observed that the assessee company has claimed deduction u/s 801A of the Income Act, 1961 to the extent of Rs.419,30,71,772/- and u/s 80IA of the Income Tax Act, 1961 to the extent of Rs.16,16,10,227/- . In the assessment order U/s 144C r.w.s. 143 (3) of the Income Tax Act, 1961 was passed on 16/1/2014 the claim of deduction has been allowed to the extent of Rs.270,37,96,655/-. However, during assessment proceedings for A.Y. 2011-12 the Assessing Officer found that the Assessee does not qualify for deduction u/s 801A and 801B of the Income Tax Act, 1961. Similarly during proceedings U/s 263, the Commissioner of Income Tax Act, Hisar also noted that on merits the assessee company-does not qualify for deduction u/s 80IA and 801B of the Income Tax Act, 1961.

 

3. During the assessment proceedings for AY 2011-12, it has been noticed that the assessee owns a captive power plant at Raigarh. This captive power plant has been established for sole purpose of un-interrupted supply of electricity to the other manufacturing units. There has been no intention of earning profits from the captive power plant. This fact has been ascertained from the applications filed by the assessee to the Chhatisgarh State Govt, for taking exemption from electricity duty etc. Even, the Auditor of the assessee does not consider it as profit oriented enterprise. It must by noted that deduction U/s 80-1A is not available to a unit or new unit unless the unit is in the nature of an ‘undertaking.’ Hence Captive Power Plant does not qualify for an undertaking.

 

4. Section 801 A(7) specifically provides for audit of books of accounts to arrive at the profit derived from the undertaking. But, in the instant case during the proceedings u/s 263 of the IT. Act for A.Y. 2005-06 the counsels of the assessee admitted (in writing) before the Commissioner of Income Tax, Hissar that the assessee company does not maintain separate unit -wise books of accounts in cnm/RatianaUarum say cash book, bank book, party leader, stock register etc.

 

4.1 Similarly during assessment proceedings for A.Y. 2011-12 the counsels of the assessee also admitted (in writing) before the Assessing Officer that the assessee company does not maintain separate unit-wise books of accounts in conventional forum say cash book, bank book, party ledger, stock register etc. it was explained that the assessee keeps consolidated books of account on SAP Computer System.

 

4.2 From the facts as admitted by the counsel of the assessee it is evidence that condition of separate books of accounts is not fulfilled by the company. In view of the factual position it is apparent that the balance sheet & P&L etc. of the units claiming 801 A and 801B are made on estimated basis only. It is also beyond understanding how the auditors the transactions of the units. Separately when no separate record is maintained and no separate details are kept.

 

5. In respect of claim of deduction u/s 801A and 801B of the I.T. Act for A.Y. 2009-10 also the assessee did not produce unit-wise books of account along with cash book, profit & loss account, balance sheet, separate unit-wise audit report, ledgers of sundry debtors and creditors and details of assets and liabilities of the eligible units. The assessee has also not explained how value of coal fines, rejected coal, cost of steam, direct and overhead expenses had been computed. There are no details and bills/vouchers (with costing) in respect of coal and iron-ore purchases and unit-wise use. Also tax audit report P&L., balance sheet and details of loan funds have to be separate from the rest of the units.

 

6. It is worth mentioning that the Commissioner of Income Tax, Hissar and the A.O. in A.Y. 2005-06 and A.. 2011-12, respectively, conducted detailed enquiries and reached the conclusion that the assessee is not entitled to deduction u/s 801A and 801B of the Income Tax Act, 1961.

 

7. In view of the factual position deduction u/s 801A 801B of the I.T. Act is not allowable to the assessee in this year also. Excess claim of deduction u/s 801A and 801B of the I.T. act has been wrongly claimed and allowed. Hence I have reason to believe that the income of the assessee to the extent of Rs.270,37,96,648/- chargeable to tax has escaped assessment because of the failure on the part of the assessee do disclose its fully and truly and al the material facts necessary for its assessment. Notice U/s 148 of the I.T. Act is required to be issued.

Sd/-

(Zahid Parvez)

Asstt. Commissioner of Income Tax Circle-1,

Gurgaon

 

13. Consequently, the ld AO passed order u/s 147 rws 143(3) of the act dated 30-12-2016. The impugned order passed by the ld AO was subject to revision in order passed by the ld PCIT dated 30-3-2019 u/s 263 of the act.

 

14. Admittedly in the present case the case of the assessee which was earlier assessed by the order passed by under section 143 (3) of the income tax act on 16/01/2014 which was passed in pursuance of the draft assessment order subject to the direction of The Dispute Resolution Panel. Therefore if any issue which is found not have been dealt with or erroneously dealt with by the Ld AO and if it is subject to revision u/s 263 of the act, than the requisite action should have been concluded by 31.03.2016 [i.e. within two years from the end of the year in which order was passed.] as in the impugned case assessment order was passed in FY 2013 – 2014.Impugned order us/ 263 of the act was passed on 26/02/2019.

 

15. Subsequently, the learned assessing officer recorded the reason for reopening of the assessment which is provided to the assessee on 29/6/2016 by The Deputy Commissioner Of Income Tax. Such reasons captioned are already reproduced above. It is apparent that case of the assessee was reopened to examine the deduction u/s 80 IA and 80 IB of the act as assessee claimed the same on power plant used for captive consumption and further it was not maintaining allegedly separate books of accounts of the eligible undertaking. Thus the issue of production of coal mines was not at all an issue in reopened assessment proceedings. The precise issues for which an action u/s 263 isinitiated are for assessing the income of the assessee on account of showing the alleged incorrect production as per M B Shah Report. Actions u/s 263 of the act is not initiated for claim of deduction of the assessee u/s 80 IA or 80 IB of the act. Therefore the issue for which revision u/s 263 is proposed is not the issue for which case of the assessee was reopened u/s 147 of the act. Thus it is apparent that action u/s 263 of the act is initiated for the issues which are already decided in the original assessment u/s 143 (3) of the act and not in reopened assessment. Therefore in such circumstances, if Ld. PCIT wants to touch any issue of the original assessment order, the time limit for passing the order us/ 263 of the act should run from the date of the original order passed u/s 143(3) of the act and not the subsequently reopened assessment order u/s 147 of the act.

 

16. Hon supreme court in CIT V Algandrean Finance Limited [(2007) 75 CCH 0720 ISCC(2007) 211 CTR 0069, (2007) 293 ITR 0001, (2007) 162 TAXMAN 0465 has held that:-

“15. We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, having regard to the fact that the CIT 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-s. (2) of s. 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revision jurisdiction having, thus, been invoked by the CIT beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity.”

 

17 Recently Hon madras High court in INDIRA INUDSTRIES vs. PRINCIPAL COMMISSIONER OF INCOME TAX( 2018) 102 CCH 0078 ( ChenHC) (2018) 169 DTR 0171 (Mad), (2018) 305 CTR 0314 (Mad) has also held that when the reopened assessment was for the disallowance of diversion of interest and subsequent revision proposed is for other issues such as bad debts written off to the tune of Rs. 33.06 lakhs and administrative, selling and distribution expenses claimed by the Assessee to the tune of Rs. 3.23 crores, the limitation runs from the original assessment order passed and not the Reassessment order.

 

18 Honourable Allahabad High court in LG ELECTRONICS INDIA PVT. LTD. vs. PRINCIPAL COMMISSIONER OF INCOME TAX(2016) 96 CCH 0284 AllHC, (2016) 143 DTR 0105 (All), (2016) 290 CTR 0283 (All), (2016) 388 ITR 0135 (All) has also concurred with above view . In that case return for Assessment Year 200708 was filed by petitioner on 31.10.2007 declaring income of Rs. 2,68,82,20,341/. It was selected for scrutiny and after verification/ examination draft assessment order under Section 143(3)/144C(1) of Act, 1961 was passed on 27.12.2010 proposing some disallowances and addition of income of Rs. 61,00,79,579/ being subsidy by way of sales tax incentive received under the scheme formulated by Government of U.P. The Assessing Officer suggested that it is “revenue receipt” and not “capital receipt” as claimed by petitioner though in Maharashtra a similar incentive was treated as “capital receipt”. Aggrieved by draft assessment order dated 27.12.2010 petitioner filed objection before Dispute Resolution Panel whereupon direction under Section 144C(5) was issued on 27.09.2011 to AO to pass final order. AO thereafter made final assessment on 31.10.2011 assessing total income to Rs. 5,83,91,17,785/ after making addition of Rs. 61,00,79,579/ on account of sales tax incentive treating it as revenue receipt. Petitioner preferred appeal before Income Tax Appellate Tribunal, New Delhi under Section 253(1)(d) of Act, 1961. Tribunal allowed appeal partly vide order dated 08.12.2014. It confirmed addition of Rs. 61,00,79,579/ towards sales tax subsidy treating it as “revenue receipt”. Against this order petitioner filed further appeal before Honourable high court which is pending. The AO reopened assessment under Section 147 and issued notice dated 21.03.2014 under Section 148 alleging that in assessment year in question there is an escaped assessment on account of failure to disallow expenditure on purchases from overseas in terms of Section 40(a)(i) of Act, 1961 for non deduction of tax at source from such payment. Reassessment order was passed on 26.03.2015 after making disallowance of purchase of Rs. 13,89,59,995/. Aggrieved thereto petitioner has filed appeal before Commissioner of Income Tax (Appeals) under Section 246A(1)(b), which is pending. Now PCIT has issued impugned notice dated 08.06.2016 under Section 263 on the ground that assessment order dated 26.03.2015 passed under Section 143(3) was erroneous and prejudicial to the interest of Revenue inasmuch as sales tax subsidy of Rs. 20,58,34,234/ accruing to petitioner under scheme of Government of Maharashtra had not been brought to tax as “revenue receipt”. It is contended that aforesaid notice dated 08.06.2016 is barred by limitation under Section 263 of Act, 1961. As the issue of taxability of sales tax subsidy as per Maharashtra Government was not at all an issue of reopening of the assessment, Hon court held that limitation for 263 proceedings will start from the original assessment order.

 

19 As in the present case before us, issues subject to revision were pertaining to original assessment and not the reopened assessment; the limitation should also start from the original assessment. In this case as original assessment order u/s 143(3) of the act was passed on 16.01.2014, the revision thereof could have been taken up to 31.3.2016. Impugned order u/s 263 of the act was passed on 26/2/2019, therefore it is clearly beyond the limitation prescribed u/s 263 (2) of the act.

 

Thus the impugned order is barred by limitation and hence quashed.

 

20 In the result appeal of the assessee is allowed on the issue of the impugned order passed beyond the prescribed time, other issues are left open.

Order pronounced in the open court on 14/05/2020.