The Commissioner Of Income Tax-1, Room v. M/S.lark Chemicals Ltd., 114, Marine Chambers, 11, New Marine Lines, Mumbai 400 020

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.2426 OF 2011WITHINCOME TAX APPEAL NO.2427 OF 2011WITHINCOME TAX APPEAL NO.2440 OF 2011 The Commissioner of Income Tax-1,Room No.387, Aayakar Bhavan,M.K.Road, Mumbai 400 020....Appellant. vs.M/s.Lark Chemicals Ltd.,114, Marine Chambers,11, New Marine Lines,Mumbai 400 020. ...Respondent. Mr.Charanjeet Chandrapal for the Appellant.Ms. V.B.Patel for the Respondent. CORAM : MOHIT S. SHAH, C.J. AND M.S. SANKLECHA, J. DATE : Reserved on 30 July 2013 Pronounced on 6 Aug. 2013 PC: These appeals by the revenue under Section 260A of the Income Tax Act, 1961 (“the Act”) challenges the order dated 31 March 2011 of the Income Tax Appellate Tribunal (“the Tribunal”) relating to assessment years 1999-2000, 2001-2002 and 2002-2003 respectively. ASN 2)Following common questions of law in all three appeals have been raised by the revenue for our consideration. a)Whether the Commissioner of Income Tax-1 Mumbai has a right to revise the order of the Assessing Officer (and also if necessary) set aside the assessment made u/s. 143(3) read with Section 147 as per order u/s. 263 of the Act, 1961, in such circumstances, specifically when it relates to use of bogus bills, non genuine parties by the assessee and such aspects which may constitute a direct attack on the interest of the revenue by dubious means of private assessee but it also opposed to public policy amounting to defrauding the state finances and is the direction of the Commissioner of Income Tax not valid and proper in asking the issues to be reexamined, as per law by the Assessing Officer? b)Whether a finding of an Assessing Officer which is based on no evidence or non material /non relevant evidence, or rather when the finding is contrary to the evidence and or rather is perverse or there is no direct nexus between a conclusion and a primary fact and when the decision is not only absurd but totally arbitrary and lack of base, cannot the same be revised by CIT, by invoking his powers u/s.263 of the Income Tax Act 1961? This would be with specific reference to the fact that a question of fact convert itself to a question of law in such cases when principle of arriving at a proper decision itself have been violated then the principle itself becomes a question to be interpreted. This makes it a question of law. c)Whether the ITAT is justified in applying inappropriate case law (293 ITR 1 SC and 325 ITR 574 Bom.) when the issues involved in the matter do not concern the case law (the grounds of limitation relied upon in the referred two cases of the ITAT are not applicable at all? 3)The issues arising in these appeals are identical and the Tribunal has also by a common order disposed of the appeals relating to four assessment years i. e. assessment years 1999-2000, 2000-2001, 2001-2002 and 2002-2003. However, only appeals for assessment year 1999-2000, 2001-2002 and 2002-2003 are before us. Therefore, we are by this order disposing of three appeals before us. For the sake of convenience we have in this order narrated the facts as stated in Income Tax Appeal No.2426 of 2011 for assessment year 2002-03. 4)The relevant facts in nut shell are that on 17 October 2002, the respondent filed its return of income for assessment year 2002-03 declaring the total income of Rs.30.98 lacs. The return of ASN 4/9ITXA -2426-2427-2440 .sxw 3)The issues arising in these appeals are identical and the Tribunal has also by a common order disposed of the appeals relating to four assessment years i. e. assessment years 1999-2000, 2000-2001, 2001-2002 and 2002-2003. However, only appeals for assessment year 1999-2000, 2001-2002 and 2002-2003 are before us. Therefore, we are by this order disposing of three appeals before us. For the sake of convenience we have in this order narrated the facts as stated in Income Tax Appeal No.2426 of 2011 for assessment year 2002-03. 4)The relevant facts in nut shell are that on 17 October 2002, the respondent filed its return of income for assessment year 2002-03 declaring the total income of Rs.30.98 lacs. The return of ASN 4/9ITXA -2426-2427-2440 .sxw income filed by the respondent was accepted by the revenue and processed under Section 143(1) of the Act. Thereafter assessment for the assessment year 2002-03 was sought to be reopened by a notice under Section 148 of the Act. This reopening of the assessment was on the ground that the respondent has purchased imported goods/chemicals etc. from three parties viz. I) Casio Pharma 2) M/s. Vishnu Pharma Chem and 3) M/s. Verma Pharmaceuticals who were alleged to be bogus and non genuine. Besides, the unsecured loans in the name of above three parties were alleged to be non genuine. Therefore, Assessing officer had reason to believe that income had escaped for AY 2002-2003. 5)Consequent to the above reopening notice, the Assessing Officer on 28 June 2006 completed the assessment under Section 143(3) read with Section 147 of the Act arriving at a total income of Rs.56.12 lacs. This addition of Rs.25.14 lacs to the income was made under Section 40A(3) of the Act on account of cash purchases from M/s. Verma Pharmaceuticals amounting to Rs.1.25 crores. The order dated 28 June 2006 dealt with only the issues raised in reopening notice. 6)On 17 March 2009 the Commissioner of Income Tax issued a show cause notice to the respondent under Section 263 of the Act seeking to revise the order dated 28 June 2006 passed during reassessment proceeding. The issues raised in the above notice under Section 263 of the Act sought to revise the issues decided not only in the order dated 28 June 2006 but also issues ASN which were in fact accepted/assessed by order/intimation under section 143(1) of the Act. 7)The respondent responded to the notice dated 12 March 2009 and pointed out that the order passed by the Assessing officer is correct and calls for no interference under Section 263 of the Act. 8)By an order dated 30 March 2009 passed under Section 263 of the Act, the Commissioner of Income Tax set aside the order dated 28 June 2006 of the Assessing officer. Further the Assessing officer was directed to do the assessment de-novo for the assessment year 2002-03 after following the principle of natural justice. 9)Being aggrieved, the respondent filed an appeal to the Tribunal. The Tribunal by the impugned order allowed the appeal. The impugned order held that the assessment order dated 28 June 2006 under Section 143(3) /147 of the Act had made an addition of Rs.25.14 lacs under Section 40A(3) of the Act on account of cash purchases made from M/s. Verma Pharmaceuticals. The assessment order also records the fact that there was no purchases from Casio Pharma and Vishnu Pharma Chem. In these circumstances, on the above issues the impugned order hold that the assessment order dated 28 June 2006 was not erroneous. Therefore, jurisdiction under Section 263 of the Act could not be exercised. So far as the other issues are concerned, the Tribunal held that the same were not issues adjudicated upon in the assessment order passed on 28 June 2006 under Section 143(3) read with Section 147 of the Act. ASN 6/9ITXA -2426-2427-2440 .sxw ASN 6/9ITXA -2426-2427-2440 .sxw Therefore, it held that the Commissioner of Income Tax would have no jurisdiction to initiate proceeding under Section 263 of the Act on those issues. Therefore, the impugned order holds that jurisdiction under section 263 of the Act is time barred. In support of its aforesaid conclusion, reliance was placed in the impugned order upon the decision of the Apex Court in CIT vs. Alagendran Finance Ltd. (2007) 293 ITR 1(SC) and of this Court in Ashoka Buildcon Ltd. v. Assistant Commissioner of Income Tax and another (2010) 325 ITR 574 (Bom.). 10)The revenue's grievance as canvassed by Mr. Charanjeet Chandrapal learned Counsel for the revenue is that the period of limitation of two years provided under Section 263 of the Income Tax Act would have no application when the issue arises out of bogus bills and non genuine purchases. This is so as according to him the same would be opposed to public policy amounting to defrauding the State. In such circumstances, the period of limitation provided under the Act would not run from the original assessment order but would run from reassessment order even if the issues have not been dealt with in the reassessment order. In view of the above, he submits that the decisions relied upon in the impugned order in Alagendran Finance Ltd. (supra) and Ashoka Buildcon Ltd. (supra) are inapplicable as they did not deal with the issue relating to bogus bills and non genuine purchases which arises in the present case. 11)As against the above, Ms. Vasanti Patel learned Counsel appearing for the assessee submits that the assessment order dated ASN 7/9ITXA -2426-2427-2440 .sxw 28 June 2006 passed under Section 143(3)/147 of the Act dealt only with the issue of non genuine purchases. The impugned order holds that the issue dealt with in the order dated 28 June 2006 is not erroneous. This issues has been accepted by the revenue as no question with regard to that has been formulated. All other issues considered in the order passed under Section 263 of the Act by the Commissioner of Income Tax were not the subject matter of the reassessment order dated 28 June 2006 but of assessments done earlier under Section 143(1) of the Act. Therefore, the issues on which the revisional jurisdiction is being exercised were admittedly issues which arose in the proceeding/assessment done prior to reopening of the assessment. In view of passage of time jurisdiction to exercise powers under Section 263 of the Act with regard to assessment done under Section 143(1)of the Act had lapsed. Ms. Vasanti Patel further submits that the Tribunal has merely followed the binding decisions of the Apex Court in the matter of Alagendran Finance Ltd. (supra) and of this Court Ashoka Buildcon Ltd.(supra). Consequently, no question of law arises for consideration by this Court. 12)We have considered the rival submissions. It is not disputed that save and except the issue of non genuine purchases all other issues dealt by Commissioner of Income Tax in the order dated 30 March 2009 were not a subject matter of the assessment order passed on 28 June 2006 under Section 143(3)/147 of the Act. All the other issues on which the Commissioner of Income Tax is seeking to exercise jurisdiction under Section 263 of the Act were concluded ASN 8/9ITXA -2426-2427-2440 .sxw 12)We have considered the rival submissions. It is not disputed that save and except the issue of non genuine purchases all other issues dealt by Commissioner of Income Tax in the order dated 30 March 2009 were not a subject matter of the assessment order passed on 28 June 2006 under Section 143(3)/147 of the Act. All the other issues on which the Commissioner of Income Tax is seeking to exercise jurisdiction under Section 263 of the Act were concluded ASN 8/9ITXA -2426-2427-2440 .sxw by virtue of an intimation under Section 143(1) of the Act which admittedly was done beyond a period of two years prior to notice dated 17 March 2009 issued under Section 263 of the Act. Section 263(2) of the Act provides that no order would be made in exercise of jurisdiction under Section 263(1) of the Act after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. It is an admitted position that the Commissioner of Income Tax has not exercised revisional jurisdiction in respect of order/intimation passed Section 143(1) of the Act within two years of it being passed. Therefore, exercise of jurisdiction on those issues under Section 263 of the Act is time barred as held by this Court in CIT vs. Anderson Marine & Sons (P) Ltd. 266 ITR 694. Moreover, in view of the decision of the Apex Court in the matter of Alagendran Finance Ltd. as well as our Court in the matter of Ashoka Buildcon Ltd.(supra) jurisdiction under Section 263 of the Act cannot be exercised on issues which were not subject matter of consideration while passing the order of reassessment under Section 143(3) /147 of the Act but a part of an assessment done earlier under the Act. 13)In the above view, we find no fault with the order of the Tribunal in allowing the respondent's appeal. The submission of Mr. Chandrapal, learned Counsel for the Revenue is that in case of bogus bills and non genuine purchases i. e. where the State is being defrauded the limitation as provided under Section 263 of the Act be ignored, cannot be accepted. This is for the reason that neither the Tribunal or we in our appellate jurisdiction can ignore the mandate ASN of limitation provided under the Act. This is an issue which would fall within the domain of the Parliament so as to make suitable amendment to the law after considering the various competing interests. So far as the submission of Mr. Chandrapal learned Counsel for the revenue with regard to the decision of the Supreme Court in Alagendran Finance Ltd. (supra) and of this Court Ashoka Buildcon Ltd. (supra) being inapplicable merely on the ground that they do not deal with the issues of bogus bills or non genuine purchases is in fact no distinction. The principle laid down in the aforesaid decisions is that a notice under Section 263 of the Act cannot be issued beyond the period of two years from the date when the order sought to be revised is passed. The case law relied upon in the impugned order are clearly applicable to the present facts. 14)In view of the fact that the impugned order has applied the binding decisions of the Apex Court and this Court, we see no reason to entertain the three questions of law as proposed by the revenue. 15)Accordingly, the appeal dismissed with no order as to costs. CHIEF JUSTICE M.S. SANKLECHA, J.