The Rajasthan High Court set aside the notice issued under Section 263 of the Income Tax Act, 1961 stating the limitation invoking revisionary powers relate back to original income tax assessment order when the reassessment order issued is distinct and different.
Jainsons Agrochem Industries, the petitioner who filed an income tax return on September 24, 2013, declaring a total income of Rs. 4,98,43,110. The return included a dividend income of Rs. 21,58,735 from UTI Ltd. mutual funds and tax paid on short-term capital gains. Following scrutiny, the Income Tax authorities issued an assessment order on January 8, 2016, under Section 143(3) of the Income Tax Act.
Subsequently, a notice under Section 154 was issued on October 18, 2016, proposing rectification of the assessment order concerning dividend income and expenses under Section 14A. Despite the petitioner’s reply, the authorities did not amend the assessment order. The petitioner was later issued a re-assessment notice under Section 147 on March 25, 2022, due to a shortfall of Rs. 2,32,330 in the job charges account for the financial year 2012-13.
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The controversy escalated when another notice under Section 263 was issued on January 9, 2024, invoking revisional jurisdiction to address the rate of tax based on issues from the original assessment.
The petitioner’s counsel, Mr. Sanjay Jhanwar, argued that the issues in the Section 263 notice related to the original assessment and not the re-assessment, asserting that the limitation period should therefore be reckoned from the original assessment order.
Citing the Supreme Court’s judgment in Commissioner of Income Tax vs. Industrial Development Bank of India Ltd. (2023), the Court noted that when the issues before the Commissioner under Section 263 are distinct from those in the reassessment, the limitation period is based on the original assessment order.
Furthermore, the Court referenced the judgment in Chambal Fertilisers and Chemicals Limited vs. Principal Commissioner of Income Tax & Anr. (2024), emphasizing that even though a re-assessment order can reset the proceedings, if the reassessment concerns different issues, the original assessment order’s date should guide the limitation period for Section 263 revisions.
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The bench of Justices Pushpendra Singh Bhati and Munnuri Laxman also considered the provisions of Section 263(2) of the Income Tax law, which stipulated a two-year limit from the end of the financial year in which the revised order was passed. It was observed that the petitioner’s challenge was valid as the revisional jurisdiction should not extend beyond this period if the issues are unrelated to the reassessment. The Rajasthan Court ruled that the impugned notice dated January 9, 2024, was barred by the limitation period as the issues addressed were tied to the original assessment order. Consequently, the Court quashed the notice and set aside the proceedings, allowing the writ petition and disposing of all pending applications.
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