M/S The Patiala Improvement Trust, Patiala v. Assistant Commissioner Of Income Tax, Patiala And Another

ITA-301-2015 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-301-2015 (O&M) Date of Decision: 22.10.2018 M/s The Patiala Improvement Trust, Patiala Versus ....Appellant. Assistant Commissioner of Income Tax, Patiala and another ...Respondents. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE AVNEESH JHINGAN. PRESENT: Mr. Sanjay Ghalawat, Advocate for Mr. Rohit Sud, Advocate for the appellant. Mr. Denesh Goyal, Sr. Standing Counsel for the respondents. *** AJAY KUMAR MITTAL, J. 1.Delay of 37 days' in refiling the appeal is condoned. 2.This order shall dispose of two appeals bearing ITA Nos.301and 351 of 2015 as according to learned counsel for the parties, similarissues are involved therein. For brevity, the facts are being extracted fromITA-301-2015. 3.ITA-301-2015 has been preferred by the assessee under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 31.10.2014 (Annexure A-6) passed by the Income Tax AppellateTribunal, Chandigarh Bench 'A', Chandigarh (hereinafter referred to as “theTribunal”) in ITA No. 1184/Chd/2013, for the assessment year 2008-09,claiming the following substantial questions of law:- ITA-301-2015 i)Whether there could be two assessment orders forone assessment year at a given point of time?one assessment year at a given point of time? ii)Whether the original assessment order could havebeen received by the Tribunal, once it was defacedon the date of passing of the reassessment order?been received by the Tribunal, once it was defacedon the date of passing of the reassessment order? iii)Whether the impugned orders are sustainable inview of Hon'ble Supreme Court judgment in thecase of [Income-Tax Officer And Anr. vs. K.L.Srihari (HUF), K.L. Narayana (1992) 197 ITR 694KAR] and [Income-Tax Officer And Anr. vs. K.L.Srihari And Ors. (2001) 250 ITR 193 SC]?view of Hon'ble Supreme Court judgment in thecase of [Income-Tax Officer And Anr. vs. K.L.Srihari (HUF), K.L. Narayana (1992) 197 ITR 694KAR] and [Income-Tax Officer And Anr. vs. K.L.Srihari And Ors. (2001) 250 ITR 193 SC]? iv)Whether the CIT(A) could pass two appellateorders for the same assessment year on the samedate?orders for the same assessment year on the samedate? 4.A few facts necessary for adjudication of the instant appeal asnarrated therein may be noticed. The assessee filed its return of income on30.9.2008 declaring Nil income. The assessment was completed underSection 143(3) of the Act by the Assessing Officer vide order dated8.12.2010 (Annexure A-1) by making an addition of ` 11,00,000/-. Feelingaggrieved by the said order, Annexure A-1, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals) [for brevity “the CIT(A)”]. During the pendency of the said appeal, the assessment wasreopened under Section 147 of the Act by the Assessing Officer. Vide re-assessment order dated 18.3.2013 (Annexure A-2), the Assessing Officerassessed the income of the assessee at ` 7,45,80,229/-. Against the saidGURBACHAN SINGHreassessment order, Annexure A-2, the assessee filed an appeal before the2018.11.02 16:55I attest to the accuracy andintegrity of this document ITA-301-2015 ITA-301-2015 CIT(A). The CIT(A) vide orders dated 17.10.2013 (Annexures A-3 and A-4, respectively) dismissed the appeal challenging the reassessment orderdated 18.3.2013 (Annexure A-2) thereby reviving the original assessmentorder and allowed the appeal filed against the order dated 8.12.2010(Annexure A-1). Being aggrieved by the orders, Annexures A-3 and A-4,the assessee filed appeals before the Tribunal. The Tribunal vide orderdated 9.7.2014 (Annexure A-5) allowed the appeal and annulled thereassessment proceedings as well as the reassessment order. Stilldissatisfied, the assessee filed an appeal before the Tribunal against thesetting aside of the reassessment proceedings and that of reviving theoriginal assessment order. The Tribunal vide order dated 31.10.2014(Annexure A-6), dismissed the appeal. Hence, the present appeals by theassessee. 5.After hearing learned counsel for the parties, we do not findany merit in the appeals. 6.The reassessment proceedings were initiated to assess theincome which had escaped assessment during the original assessmentproceedings. Ordinarily, whenever an reassessment order is made, in thateventuality the original assessment order would cease to exist. There can beonly one assessment. Once a particular income had been assessed andsubsequently, it was found that certain income had escaped assessment, theAssessing Officer is empowered to issue notice under Section 148 of theAct and bring the escaped income or other income to tax which had beenfound taxable during such reassessment proceedings. It is clarified that inthe reassessment proceedings, the income which had already beendetermined or assessed to tax is also added to the escaped income. If the ITA-301-2015 -4- reassessment proceedings were held to be invalid by the Tribunal or a Courtof Law, in that situation, it cannot be held that the original assessmentstands obliterated. In other words, if the initiation of reassessmentproceedings is held to be invalid, the assessee would revert back to thesituation where he originally stood, i.e. the original assessment order wouldrevive. The doctrine of merger would have no application in the presentcase as the subsequent order was held to be unsustainable in law. The saiddoctrine would apply only in a situation where the subsequent reassessmentorder has been held to be valid in law.7.The Tribunal had rightly held that where the reassessment orderwas annulled, the original assessment order would automatically getrestored. The relevant observations of the Tribunal read thus:- “18.Above issue can also be examined from anotherangle by referring to the doctrine of merger. Normallydoctrine of merger states that when an order is passed bya higher authority then order passed by the lowerauthorities stands merged with the order of higherauthorities but this is not universal principle for everysituation. This becomes clear from the decision in caseof CIT v. Shri Arbuda Mills Ltd. 231 ITR 50. In thatcase assessment was completed u/s 143(3) of the Act andnet business loss was computed at ` 3,61,086/- and theincome under the head “capital gain” was determined at` 38,874/-. The ITO made certain disallowances andwhile computing the loss and income as above but hadaccepted the following three claims:- (i)deduction of a sum of ` 23,82,621/- by wayof provisions for gratuity;of provisions for gratuity; (ii)Depreciation on ` 4,21,000/- which was paidby the assessee to United Textile Industries asconsideration for transfer of installed property of` 17,480/- spindles and 400 looms of Old ManekChowk Mills;by the assessee to United Textile Industries asconsideration for transfer of installed property of` 17,480/- spindles and 400 looms of Old ManekChowk Mills; (i)deduction of a sum of ` 23,82,621/- by wayof provisions for gratuity;of provisions for gratuity; (ii)Depreciation on ` 4,21,000/- which was paidby the assessee to United Textile Industries asconsideration for transfer of installed property of` 17,480/- spindles and 400 looms of Old ManekChowk Mills;by the assessee to United Textile Industries asconsideration for transfer of installed property of` 17,480/- spindles and 400 looms of Old ManekChowk Mills; (iii)loss on account of difference in exchangerate which was referable of the purchase ofmachinery etc. as revenue expenditure.”rate which was referable of the purchase ofmachinery etc. as revenue expenditure.” The assessee filed an appeal in respect of item for whichthe additions were made. Later on an order u/s 263 waspassed in respect of allowance of above three items.Therefore, the question arose before the Hon'ble SupremeCourt whether these three items merged with theappellate order. The Hon'ble supreme Court observed asunder:- “We may refer to the amendment made in Section263 of the IT Act by the Finance Act, 1989 withretrospective effect from June 1, 1988. Therelevant part thereof for the present case is asunder: “Explanation – for the removal of doubts, itis hereby declared that, for the purposes ofthis sub-section- (c) where any order referred to in this sub- section and passed by the Assessing officerhad been the subject matter of any appealfiled on or before or after June 1, 1988 thepowers of the Commissioner under this sub-section shall extend and shall be deemedalways to have extended to such matters ashad not been considered and decided in suchappeal.” The consequence of the said amendmentmade with retrospective effect is that the powersu/s 263 of the Commissioner shall extend and shallbe deemed always to have extended to suchmatters as had not been considered and decided inan appeal. Accordingly, even in respect of theaforesaid three items, the powers of theCommissioner u/s 263 shall extend and shall bedeemed always to have extended to them becausethe same had not been considered and decided inthe appeal filed by the assessee. This is sufficientto answer the question which has been referred.”Thus from above it becomes clear that doctrine of mergerhas limited application and would not lead to theconclusion that every item in one order would get mergedin another order if the same is appealed or other order ispassed in accordance with law. Therefore clearlywhatever income is assessed u/s 143(3) will stand and would not get merged in the reassessment order passedu/s 147 if the latter reassessment order is annulledbecause of some reason. Same principle of doctrine ofmerger was laid down by the Hon'ble Supreme Court incase of CIT v. Alagendran Finance Ltd. (supra). 19.If the contention of the assessee is accepted then itwould lead to totally undesired wild results. For exampleif the assessee files return declaring income of ` 1 croreand an addition of ` 25 lakhs is made then the assessedincome would be ` 1.25 crores u/s 143(3). Let us saylater on an item of income is found to have escaped for` 10 lakhs and notice is issued u/s 148 to bring such itemof escaped income into tax and in reassessment orderincome assessed at ` 1.35 crores. Let us further say thatsuch reassessment is found without jurisdiction later onin appeal proceedings because of non recording ofreasons or the issue is time barred and such reassessmentis annulled. Then if it is held that since reassessmentorder has effaced, the original order, then the resultwould be that the assessee would not be liable to pay thetax on admitted income of ` 1 crore as well as theaddition made on ` 25 lakhs. This is totally against thescheme of the Act as well as principle laid in the case ofCIT v. Shelly Products (supra). No doubt we agree to theextent that the assessee has right to challenge theaddition of ` 25 lakhs. But if the interpretation made by -8- the Ld. Counsel for the assessee is accepted, it wouldlead to undesired wild results which are totally againstthe scheme of Act and, therefore, same cannot beaccepted. 20.Therefore, in view of above discussion, we holdthat where reassessment order is annulled later on thenoriginal assessment order would automatically getrestored. Accordingly, we dismiss grounds No.2 and 3 ofassessee's appeals.” 8.No illegality or perversity could be pointed out by learnedcounsel for the assessee in the findings recorded by the Tribunal. Noquestion of law, much less, substantial question of law arise in theseappeals. Accordingly, finding no merit in the appeals, the same are herebydismissed. (AJAY KUMAR MITTAL) JUDGE October 22, 2018gbs (AVNEESH JHINGAN)JUDGE Whether Speaking/ReasonedWhether Reportable YesYes