BY TIOL News Service

CHENNAI, JUNE 18, 2018: THE issue at hand before the bench is whether the date of reckoning u/s 263(2) is not the date of making re-assessment, but rather the date on which scrutiny assessent was conducted. YES is the answer.

Facts of the case

THE assessee company, a partnership, filed its returns for the relevant AY. Such returns were accepted by examining the assessee's books of accounts and other records presented. Subsequently, upon a scrutiny assessment u/s 143(3), the assessee was served a notice u/s 142(1) seeking certain details, which the assessee later furnished. Thereafter, the assessment was re-opened u/s 148, on grounds that certain sums of monies paid by the assessee as interest to bank, which the assessee claimed as expenditure, were to be disallowed. The Department claimed that the interest so paid by the assessee pertained to loan taken from the bank. The Department claimed that the assessee diverted such loan to its partners and so the interest paid could not be treated as expenditure in its returns.

The assessee accepted such position, whereupon a reassessment order was passed u/s 143(3) r/w Section 147, disallowing the interest component paid by the assessee to the Bank. Besides, the assessee had paid the entire tax demand post such re-assessment, and the same was not contested by the Revenue. Hence the assessee claimed that such re-assessment order could not have been passed as the tax demanded had already been paid. It filed a writ petition before this court contesting such order. However, the Single Judge dismissed the same.

In writ, the High Court held that,

++ in the instant case, a perusal of the re-assessment order dated 30.12.2016 under Section 143(3) of the IT Act reveals that the only point qua reassessment is dis-allowance of interest paid to the Bank by the Assessee in the light of the loans on which the interest was paid being diverted to partners of the Assessee firm. To be noted, this is the lone point on which the reassessment was done or in other words, this is the lone point on which the entire re-assessment exercise was carried out;

++ therefore, as the notice deals with several issues other than the one raised earlier, the limitation period in the instant case has to necessarily run from 31.3.2015 being the end of the financial year as 25.02.2015 is the date on which the scrutiny assessment was admittedly made for the Assessee under Section 143 (3) of the IT Act;

++ we therefore have no hesitation in holding that the reckoning date qua the notice for the purpose of Section 263(2) of IT Act is not the date of re-assessment being 30.12.2016, but the date of scrutinizing the assessment i.e, 25.02.2015. In light of such facts, the re-assessment notice is dated 16.08.2017 and is therefore, clearly beyond two years when reckoned from 25.02.2015;

++ the principles and the grounds available for assailing a show-cause notice are now well settled. If the authority issuing the show-cause notice lacks jurisdiction and if it is clearly barred by law, it certainly renders the show-cause notice invalid in law. In the instant case, as the notice, though is a show-cause notice as noticed by the single Judge, is invalid, as it has been issued beyond two years from the reckoning date and is clearly hit by Sub-section (2) of Section 263. In other words, the notice is hit by the vice of lack of jurisdiction. Therefore, the assessee is entitled to succeed in its challenge to the notice.

(See 2018-TIOL-1136-HC-MAD-IT)