Narendra Sharma, Adv. for the Petitioner. Kannan Narayanan, JCIT-DR for the Respondent.

This appeal at the instance of the assessee is directed against CIT(A)’s order dated 22.11.2016. The relevant assessment year is 2002-2003.

2. The grounds raised read as follow:-

1. The Order of the learned Commissioner of Income-tax [Appeals] in so far as it is against the Appellant is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant's case.

2. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the assumption of jurisdiction by the learned assessing officer under section 154 (of Income Tax Act, 1961) is barred by limitation and hence the entire order passed by the learned assessing officer under the provisions of section 154 (of Income Tax Act, 1961) is bad in law and the same requires to be cancelled on the facts and circumstances of the case.

3. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the order sought to be rectified under section 154 (of Income Tax Act, 1961) is an order passed by the learned assessing officer pursuant to the directions of the Hon'ble Tribunal which was passed under section 143 (of Income Tax Act, 1961)[3] r.w.s. 254 (of Income Tax Rules, 1962) of the Act and the issue which was proposed to be rectified was never a subject matter of appeal before the learned authorities and consequently the learned assessing officer exceeded his jurisdiction which is not permissible in law on the facts and circumstances of the case.

4. The learned Commissioner of Income-tax [Appeals] is not justified in law in confirming the order of rectification passed by the learned assessing officer under section 154 (of Income Tax Act, 1961), without appreciating that in the guise of rectifying the order dated 20/10/2011, has attempted to rectify already concluded issues in the original order of assessment passed under section 143 (of Income Tax Act, 1961)[3] of the Act dated 10/02/2005, under the facts and circumstances of the case.

5. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the issue involved in the impugned order of rectification passed by the learned assessing officer involved long drawn process of reasoning and is highly debatable and thereby not appreciating the ratio of the decision as laid out by the Apex Court in the case of T.S.Balaram, Income-Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers reported in 82 ITR 50 on the facts and circumstances of the case.

6. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above.

7. In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.”

3. The brief facts of the case are as follow: The assessee is a public sector undertaking established under the Companies Act, 1956. It is engaged in the business of generation of power. For the assessment year 2002-2003, the return of income was filed on 30.10.2002 declaring income of Rs.246,40,54,707 against which the unabsorbed depreciation of earlier year was set off and taxable income was arrived at `NIL’. The assessee-company had computed its book profit u/s 115JB (of Income Tax Act, 1961) at Rs.228,92,84,853. The assessment u/s 143(3) (of Income Tax Act, 1961) was completed by determining the total income at Rs.247,24,14,312 and this was set off with unabsorbed depreciation. The book profit of Rs.228,92,84,853 was brought to tax u/s 115JB (of Income Tax Act, 1961). Subsequently, the CIT vide order dated 28.03.2007 passed u/s 263 (of Income Tax Act, 1961), set aside the assessment order dated 10.02.2005, and directed the A.O. to compute the income after disallowing two expenditure claimed under the head `donation of asset’ and `loss of asset’ amounting to Rs.2,18,08,792 and Rs.2,19,73,292, respectively, since according to the CIT, these were capital expenditure. Aggrieved by the revisionary order of the CIT passed u/s 263 (of Income Tax Act, 1961), the assessee preferred an appeal to the Tribunal. The Tribunal vide order dated 28.03.2007 in ITA No.584/Bang/ 2009 vacated the findings of the CIT and directed the Assessing Officer to look into the issue afresh whether the expenditure claimed by the assessee are allowable or not. The A.O., pursuant to the order of the Tribunal, called for details as regards the item claimed as revenue expenditure. After examining the details submitted by the assessee, the AO passed order dated 20.10.2011 u/s 143(3) (of Income Tax Act, 1961) r.w.s. 254 (of Income Tax Rules, 1962) of the I.T.Act. The expenditures were disallowed by the A.O. by treating it as capital expenditure. As against the order of the A.O. passed u/s 143(3) (of Income Tax Act, 1961) r.w.s. 254 (of Income Tax Rules, 1962) of the I.T.Act, it is stated that the assessee has filed further appeal before the CIT(A) and same is pending adjudication.

4. In the meanwhile, the Assessing Officer issued notice of rectification u/s 154 (of Income Tax Act, 1961) proposing to rectify the A.O.’s order dated 20.10.2011 passed u/s 143(3) (of Income Tax Act, 1961) r.w.s. 254 (of Income Tax Rules, 1962) of the I.T.Act. The reason for the A.O. to issue notice u/s 154 (of Income Tax Act, 1961) was that deduction u/s 80IA (of Income Tax Act, 1961) amounting to Rs.80.55 crore has been allowed before computing gross total income. The assessee filed objection to the notice issued u/s 154 (of Income Tax Act, 1961), stating that rectification proceedings initiated is time barred. On merits, it was submitted that the issue sought to be rectified is a debatable issue and not amenable to proceedings u/s 154 (of Income Tax Act, 1961). However, the Assessing Officer rejected the contentions raised by the assessee and passed an order u/s 154 (of Income Tax Act, 1961) on 28.03.2012. The A.O. computed the income in the following manner:-

“Profit for the year (as per computation of assessee) Rs.326,96,41,150 Add : Loss on assets Rs.2,19,73,292 Donation of assets Rs.2,18,08,292 Rs.4,37,81,575 Business income Rs.331,34,22,725 Less : Unabsorbed Business Loss Rs.15,23,17,724 Depreciation for 2001- 2002 Rs.94,53,87,759 Brought forward unabsorbed depreciation Rs.221,57,17,242 331,34,22,725

Gross Total Income NIL Less : Deduction u/s 80IA (of Income Tax Act, 1961) NIL Total Income NIL Unabsorbed Depreciation to be carried forward Rs.135,38,91,829.”

5. Consequent to the rectification order, no deduction u/s 80IA (of Income Tax Act, 1961) was allowed and additionally set off of brought forward loss was reduced by Rs.80.55 crore. The A.O. held that “..........As per the provisions of section 80A(2) (of Income Tax Act, 1961) and section 80B(5) (of Income Tax Act, 1961) and also as per the decision of the Hon’ble Supreme Court in the case of Synco Industries Ltd. v. AO & Other (reported in 299 ITR 444), it is seen that the deduction under Chapter VIA has to be given out of the gross total income calculated as per the provisions of Income Tax Act, 1961 after application of provisions relating to set off of losses”. The A.O. held that 154 order is not barred by limitation, since order sought to be rectified is order of A.O. dated 20.10.2011 passed u/s 143(3) (of Income Tax Act, 1961) r.w.s. 254 (of Income Tax Rules, 1962) of the I.T.Act. On merits, the A.O. held that the issue is not debatable, since there is clear declaration of law by Hon’ble Apex Court in case of Synco Industries Limited (supra).

6. Aggrieved by the order of the Assessing Officer in passing a rectification order u/s 154 (of Income Tax Act, 1961), the assessee has preferred an appeal to the first appellate authority. Before the CIT(A), the assessee contended that the rectification order is barred by limitation. Further, it was contended that on merits, the issue is highly debatable and hence proceedings u/s 154 (of Income Tax Act, 1961) cannot be taken. Both the issues raised by the assessee were rejected by the CIT(A). The relevant findings of the CIT(A) reads as follow:-

“7. From a bare reading of sub-section (IA) of section 154 (of Income Tax Act, 1961), it is clear that any matter not considered in proceedings by way of appeal or revision was amenable to amendment under section 154 (of Income Tax Act, 1961) for rectifying a mistake apparent from record. Admittedly, the procedure for computing deduction under section 80LA (of Income Tax Act, 1961). was not a subject matter either in revision or appeal before ITA T. Therefore, there was no bar in rectifying a mistake apparent from record in the order passed under section 143(3) (of Income Tax Act, 1961) read with section. 254 of the Act on 20.10.2011. There is no substance in the appellant's contention. The ground is not allowed.

8. In ground no. 3, it has been contended that the issue rectified by the officer was highly debatable and required a long drawn process of reasoning.

9. According to Article 141 of the' Constitution of India the law declared by the Supreme Court shall be binding on all courts within the territory of India. Therefore, it could not be said that the matter was debatable. As noted above, the matter rectified was the computation of deduction under section 80IA (of Income Tax Act, 1961) relating to the manner in which it was to be computed with reference to set off of losses. The relevant facts were on record and as such long drawn process of reasoning was not required in this case. The ground is not allowed.

10. In ground no. 4, it has been contended that the assessing officer had rectified concluded issues in the guise of rectification proceedings.

11. As noted above, there was a mistake ill the order passed under section 143(3) (of Income Tax Act, 1961) read with section. 254 of the Act on 20.10.2011, the mistake was apparent from record. There was no finality as regards the mistake in the order as there can be no estoppel against law so as to perpetuate a mistake. Any mistake apparent from record could be rectified in accordance with the provisions of section 154 (of Income Tax Act, 1961). The ground is not allowed.”

7. Aggrieved by the order of the CIT(A), the assessee has filed this appeal before the Tribunal. The learned AR has filed a paper book enclosing therein the written submissions submitted before the CIT(A), computation of statement of total income, the orders of the Assessing Officer, the CIT(A), the ITAT in the earlier proceedings, the reply of the assessee to notice u/s 154 (of Income Tax Act, 1961), etc. The learned AR has also filed case laws compilation on which reliance is placed. The learned AR reiterated the submissions made before the Income Tax Authorities.

8. The learned Departmental Representative, on the other hand, relied on the orders passed by the A.O. and CIT(A). Further, the learned DR relied on the judgment of the Hon’ble Apex Court in the case of Hind Wire Industries Limited v. CIT [(1995) 212 ITR 639 (SC).

9. We have heard rival submissions and perused the material on record. The issues raised for our adjudication are as follows:-

(i) Whether the order of rectification passed by the A.O. under section 154 (of Income Tax Act, 1961) is beyond the period of limitation as per the provisions of section 154(7) (of Income Tax Act, 1961) or not?

(ii) Whether the rectification proceedings initiated under section 154 (of Income Tax Act, 1961) is a debatable issue and is amenable for rectification under section 154 (of Income Tax Act, 1961) or not?

9.1 We shall first adjudicate the whether the order of rectification passed by the A.O. under section 154 (of Income Tax Act, 1961) is beyond the period of limitation as per the provisions of section 154(7) (of Income Tax Act, 1961) or not? The issue which was rectified u/s. 154 (of Income Tax Act, 1961) is with regard to the deduction under section 80-IA (of Income Tax Act, 1961). Whether deduction is to be allowed before computing gross total income or after application of provisions relating to set off of losses. The said issue of computation of deduction under section 80IA (of Income Tax Act, 1961) was never a subject matter of dispute in the revisionary proceedings u/s 263 (of Income Tax Act, 1961), further appeal to ITAT or even in the consequential order passed by the A.O. to give effect to the order of the I.T.A.T under section 143(3) (of Income Tax Act, 1961) r.w.s. 254 (of Income Tax Rules, 1962) of the Act dated 20.10.2011. The chronological order by the A.O., revisional authorities, Appellate authority, etc. are follow:-

Sl. No. Proceedings Date

(a) Order passed under section 143(3) (of Income Tax Act, 1961). 10/02/2005

(b) Revision order passed under section 263 (of Income Tax Act, 1961). 28/03/2007

(c) Order of the Tribunal against the appeal preferred by the appellant against 263 order. 16/05/2008

(d) Consequential order passed by the learned AO subsequent to the directions of the Hon’ble Tribunal under section 143(3) (of Income Tax Act, 1961) r.w.s. 254 (of Income Tax Rules, 1962) of the Act. 20/10/2011

(e) Impugned rectification order passed by the A.O. under section 154 (of Income Tax Act, 1961). 28/03/2012

9.2 The CIT[A] in para 7 of the impugned order had relied on the provisions of section 154(1A) (of Income Tax Act, 1961) to hold that the A.O. is justified in making rectification of the issue which was not subject matter of appeal / revision. The relevant findings of the CIT(A) reads as follow:-

"7. From a bare reading of sub-section (1A) of section 154 (of Income Tax Act, 1961); it is clear that any matter not considered in proceedings by way of appeal or revision was amenable to amendment under section 154 (of Income Tax Act, 1961) for rectifying a mistake apparent from record. Admittedly, the procedure for computing deduction under section 80IA (of Income Tax Act, 1961) was not a subject matter either in revision or appeal before ITAT.

Therefore, there was no bar in rectifying the mistake apparent from record in the order passed under section 143(3) (of Income Tax Act, 1961) read with section 254 (of Income Tax Act, 1961) on 20. 10.2011. There is no substance in the appellant's contention. The ground is not allowed." 9.3 From the above finding of the CIT(A), it is clear that the issue of deduction u/s 80IA (of Income Tax Act, 1961) was not subject matter of any proceedings either in revision or appeal. In other words, admittedly, the issue as regards the computation of deduction u/s 80IA (of Income Tax Act, 1961) is arising only from the original assessment order dated 10.02.2005 passed u/s 143(3) (of Income Tax Act, 1961). The further question is which is the order sought to be rectified u/s 154(7) (of Income Tax Act, 1961), whether it is the order of A.O. dated 10.02.2005 passed u/s 143(3) (of Income Tax Act, 1961) or A.O’s order dated 20.10.2011 passed u/s 143(3) (of Income Tax Act, 1961) r.w.s. 254 (of Income Tax Rules, 1962) of the I.T.Act. If the period of limitation is reckoned from original assessment order, then rectification order dated 28.03.2012 is barred by limitation u/s 154(7) (of Income Tax Act, 1961).

9.4 In this context, let us refer to section 154 (of Income Tax Act, 1961), which reads as follows:-

“Rectification of mistake.

154. [(1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 (of Income Tax Act, 1961) may,-

(a) amend any order passed by it under the provisions of this Act

[(b) amend any intimation or deemed intimation under sub- section (1) of section 143 (of Income Tax Act, 1961);]]

[(c) amend any intimation under sub-section (1) of section 200A (of Income Tax Act, 1961).]

[(1A) Where any matte has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.]

(2) Subject to the other provisions of this section, the authority concerned-

(a) may make an amendment under sub-section (1) of its own motion, and

(b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee [or by the deductor], and where the authority concerned is the [***] [Commissioner (Appeals)], by the [Assessing] Officer also. [***]

(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee [or the deductor], shall not be made under this section unless the authority concerned has given notice to the assessee [or the deductor] of its intention so to do and has allowed the assessee [or the deductor] a reasonable opportunity of being heard.

(4) Where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned.

(5) Where any such amendment has the effect of reducing the assessment or otherwise reducing the liability of the assessee or the deductor, the Assessing Officer shall make any refund which may be due to such assessee or the deductor.]

(6) Where any such amendment has the effect of enhancing the assessment or reducing a refund [already made or otherwise increasing the liability of the assessee or the deductor, the Assessing Officer shall serve on the assessee or the deductor, as the case may be] a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 (of Income Tax Act, 1961) and the provisions of this Act shall apply accordingly.

(7) Save as otherwise provided in section 155 (of Income Tax Act, 1961) or sub-section (4) of section 186 (of Income Tax Act, 1961) no amendment under this section shall be made after the expiry of four years [from the end of the financial year in which the order sought to be amended was passed.

[(8) Without prejudice to the provisions of sub-section (7), where an application for amendment under this section is made by the assessee [or by the deductor] on or after the 1st day of June, 2001 to an income-tax authority referred to in sub-section (1), the authority shall pass an order, within a period of six months from the end of the month in which the application is received by it,-

(a) making the amendment; or

(b) refusing to allow the claim.]”

9.5 In context of the case, it is also necessary to discuss the issue regarding the merger of the orders in appellate order and the Assessing Officer’s jurisdiction to rectify the same. The doctrine of merger is based on the principle that there cannot be, at one time, more than one operative order governing the same subject matter. Whether there is merger of the order of assessment or other order of the Assessing Officer in the appellate order of the appellate authority or not and, if there is, to what extent, depends upon the subject matter of the appellate order. The order of assessment made by the Assessing Office merges in the order of the appellate authority only in so far as it relates to items considered and decided by the appellate authority. That part of the assessment order which relates to items not forming the subject matter of the appellate order is left untouched and does not merge in the order of the appellate authority. Even after an appeal from an order of assessment is decided by the appellate authority a mistake in that part of the order of assessment which was not the subject matter of review by the appellate authority, can always be rectified by the Assessing Officer u/s 154 (of Income Tax Act, 1961), because the mistake would be his own mistake which he can always correct u/s 154 (of Income Tax Act, 1961). This principle is given statutory effect by sub-section (1A) introduced by way of amendment in section 154 (of Income Tax Act, 1961) by Direct Taxes (Amendment) Act, 1964. The CIT(A) in the impugned order had relied on the provisions of section 154(1A) (of Income Tax Act, 1961) to hold that the A.O. is justified in making rectification of the issue, which are not subject matter of appeal / revision. In this context, it is relevant to refer to the judgment of the Hon’ble Apex Court in the case of CIT v. Alagendran Finance Ltd. [(2007) 293 ITR 1 (SC)] . The Hon’ble Apex Court in the case of CIT v. Alagendran Finance Ltd. (supra) was considering the issue of doctrine of merger and whether Commissioner’s order passed u/s 263 (of Income Tax Act, 1961) is barred by limitation. In the said case, there were assessments completed for assessment years 1994- 95 to 1996-1997 and subsequently there were reassessment u/s 143(3) (of Income Tax Act, 1961) r.w.s. 147 (of Income Tax Rules, 1962) of the I.T.Act. Thereafter, the Commissioner set aside the assessment orders and directed the A.O. to consider afresh the “Lease Equivalization Fund”. The issue of “Lease Equivalization Fund” was not the subject matter of reassessment order passed u/s 143(3) (of Income Tax Act, 1961) r.w.s. 147 (of Income Tax Rules, 1962) of the I.T.Act. Therefore, the question was whether the CIT’s order u/s 263 (of Income Tax Act, 1961) was barred by limitation. If period of limitation is reckoned from the original assessment, the CIT’s order u/s 263 (of Income Tax Act, 1961) would be time barred. The Hon’ble Apex Court held that since `lease equalization fund’ was not subject matter of reassessment proceeding, period of limitation provided u/s 263(2) (of Income Tax Act, 1961) would run from original assessment order and not the reassessment order. The relevant finding of the Hon’ble Apex Court reads as follow:-

“25. 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 Commissioner of Income-tax exercising his revisional jurisdiction reopened the order of assessment only in relation to lease equalisation fund which being not the subject of the reassessment proceedings, the period of limitation provided for under sub-section (2) of section 263 (of Income Tax Act, 1961) would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus, been invoked by the Commissioner of Income- tax beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity.”

9.6 Further, the Hon’ble Apex Court referred to Explanation (c) appended to sub-section (1) of section 263 (of Income Tax Act, 1961) and held that power of the Commissioner in revision is clear and unambiguous, as in terms thereof the doctrine of merger applies only in respect of such items which were subject matter of appeal and not in respect of those which were not. Accordingly, the Hon’ble Apex Court held that the order u/s 263 (of Income Tax Act, 1961) is barred by limitation. The Explanation (c) appended to section 263(1) (of Income Tax Act, 1961) and section 154(1A) (of Income Tax Act, 1961) are para materia. The Hon’ble Apex Court in case of CIT v. Alagendran Finance Ltd. (supra), had also referred to the judgment of the Hon’ble Apex Court in the case of Hind Wire Industries Limited v. CIT (supra) (the case strongly relied on by the learned DR). The Hon’ble Apex Court in the case of Hind Wire Industries Limited v. CIT (supra) while construing section 154 (of Income Tax Act, 1961), observed that the word `order’ has not been qualified in any way and does not necessarily mean `original order’. It can be any order including the `amended’ or `rectified order’. The assessee therein had sought rectification of order dated July 12, 1982 and the Court held that the word `order’ u/s 154(7) (of Income Tax Act, 1961) would include even `rectified order’. In coming to the above conclusion, the Hon’ble Apex Court in the case of Hind Wire Industries Limited (supra) inter alia has followed the earlier judgment of the Hon’ble Supreme Court in a Sales-tax case in the case of International Cotton Corporation Pvt. Ltd. v. CTO reported in 35 STC 1, on the reasoning that on rectification, the original order is no longer subsisting, with the result that the time limit cannot be counted from the date of original order. In other words, once an order of rectification is passed, the assessment itself is modified and what remain thereafter is, not the order of rectification, but assessment as rectified.

9.7 The Hon’ble Allahabad High Court in the case of Shree Naw Durga Bansal Cold Storage and Ice Factory v. CIT & Anr. [(2017) 397 ITR 626 (All.)] (facts of the case considered by the Hon’ble Allahabad High Court and facts of the instant case are similar) had also referred to the judgment of the Hon’ble Apex Court in the case of Hind Wire Industries Limited (supra) by observing as under:-

“23. We also find that judgment relied on by learned counsel for the assessee in Hind Wire Industries Ltd. (supra) also supports the aforesaid view expressed by us. Therein an assessment order was passed on September 21, 1979. On a rectification petition filed under section 154 (of Income Tax Act, 1961), the assessment order was rectified on July 12, 1982. The assessee again filed rectification petition on July 4, 1986 contending that he was entitled for depreciation allowance on the factory building at the rate of ten per cent., while he was allowed depreciation only to five per cent. This application was rejected by the Assessing Officer being barred by time under section 154(7) (of Income Tax Act, 1961) and order was confirmed by the Commissioner in appeal. The Tribunal took the view that for the purpose of section 154(7) (of Income Tax Act, 1961), limitation would commence from rectified order dated July 12, 1982 but on a reference, the High Court reversed the view taken by the Tribunal and held that the period of four years could be calculated from initial order of the assessment made on September 21, 1979 and not rectified assessment order dated July 12, 1982. The Supreme Court while construing section 154 (of Income Tax Act, 1961) observed that the word "order" has not been qualified in any way and does not necessarily mean "original order". It can be any order including the "amended" or "rectified order". The assessee therein had sought rectification of order dated July 12, 1982 and the court held that the word "order" under section 154(7) (of Income Tax Act, 1961) would include even "rectified order".

24. In CIT v. Tony Electronics Limited (supra), the court has held that judgment in Hind Wire Industries Ltd. (supra) lays down that once an order is rectified, initial order ceases to operate and it is no more in existence. Relevant observation reads as under (page 385 of 320 ITR) : "What follows from the aforesaid is that after the rectification order, the initial order of assessment ceases to operate. It is no more in existence and is substituted by the fresh assessment order passed. The court, thus, categorically held that the word 'any' in the expression 'order sought to be amended' would mean even the rectified order." (emphasis added)

25. With respect to the Delhi High Court judgment, the inference drawn from reading of judgment in Hind Wire Industries Ltd. (supra) is much more than what has actually been said therein. The Supreme Court very clearly has said that (page 642 of 212 ITR) :

". . . word 'order' has not been qualified in any way and it does not necessarily mean the original order. It can be any order, including the amended or rectified order." (emphasis1 added)

26. The aforesaid word "including" makes it very clear that an amended or rectified order would not result in nullifying the original order and to say that the original order would cease to exist, the observations made in the Delhi High Court judgment is more than what has been said. The judgment referred in Hind Wire Industries Ltd. (supra) related to the cases wherein the court found that effect of reopening and reassessment of assessment is to vacate the initial order of assessment and to substitute in its place the order made on reassessment. With this proposition there cannot be any quarrel and this aspect is already covered in Deputy CCT v. H. R. Sri Ramulu [1977] 39 STC 177 (SC), V. Jaganmohan Rao v. CIT/EPT [1970] 75 ITR 373 (SC) and CST v. H. M. Esufali H. M. Abdulali [1973] 90 ITR 271 (SC).

27. In Hind Wire Industries Ltd. (supra) the Supreme Court has used word "including" in the amended or rectified order would mean that word "order" as the case may be can be either "original order" or "amended order" or "rectified order" depending upon the fact as to in which order the assessee is seeking rectification. To read it as if, once rectified order is passed, the original order would disappear, would result in nullifying the effect of word "including" in the observations made by the Supreme Court, while reading meaning of word "order" in section 54(7) (of Income Tax Act, 1961).

28. In our case there may exist more than one orders. As is evident from the fact that section 154(7) (of Income Tax Act, 1961) used expression "order sought to be amended" meaning thereby for the purpose of attracting section 154(7) (of Income Tax Act, 1961), such order which is sought to be amended, would determine the period of limitation.

29. In the present case, subsequent orders dated December 31, 2009 and January 25, 2011 were not in respect to the assessment of other items but confined to limited issue of "long-term capital gain" since that was the only aspect whereupon, the Tribunal has remanded the matter to the assessing authority. Issue of set off etc. was not the subject matter of consideration before the assessing authority when he passed orders dated December 31, 2009 and January 25, 2011. The assessee, in fact, wanted amendment in the "original order" dated March 31, 2006 and hence limitation would count from that order.

30. We may also notice at this stage that the Supreme Court's judgment in Hind Wire Industries Ltd. (supra) has been considered in CIT v. Alagendran Finance Ltd. [2007] 293 ITR 1 (SC) and it has been said therein that there may not be any doubt or dispute that once an order of assessment is reopened, the previous assessment would be held to be set aside and the whole proceedings would start afresh but the same would not mean that even when the subject matter of reassessment is distinct and different, the entire proceedings would deem to have been reopened. The court further said :

"An assessee cannot agitate in any such reassessment proceedings matters forming part of the original assessment which are not required to be dealt with for the purpose of levying tax on that which had escaped tax earlier. Cases of underassessment are also treated as instances of escaped assessment. The order of reassessment is one which deals with the assessment already made in respect of items which are not required to be reopened, as also matters to be dealt with in order to bring what had escaped in the earlier order of assessment, to assessment." “

9.7.1 Thereafter, the Hon’ble Allahabad High Court followed the judgment of Hon’ble Apex Court in the case of CIT v. Alagendran Finance Ltd. (supra) and concluded as under:-

“31. Learned counsel for the assessee also could not dispute that mistake regarding set off of loss had occurred in the assessment order dated March 31, 2006 but on this aspect the assessee did not either carry the dispute in appeal before the Commissioner of Income-tax (Appeals) or Tribunal or filed application for rectification within the period of limitation under section 154(7) (of Income Tax Act, 1961). Therefore, in the garb of remand order in relation to some other aspect, the assessee, could not have taken advantage of extension of limitation by seeking commencement thereof from the order passed by the assessing authority on the issue on which remand was made.”

9.8 The Hon’ble jurisdictional High Court in the case of M/s.Kothari Industrial Corporation Limited v. The Agricultural Income Tax Officer reported in 230 ITR 306 had held that the period of limitation for a second rectification should be reckoned from the date of original order, if subject matter of second rectification is different from subject matter of the first rectification. The relevant finding of the Hon’ble jurisdictional High Court reads as follow:-

“16. Where an order of an authority is rectified by the said authority in regard to a specified subject or issue, the period of limitation for a second rectification should be reckoned from the date of the original order, if the subject-matter of the second rectification is different from the subject-matter of the first rectification. If the second rectification is, however, in regard to the subject- matter of the first rectification, the period of limitation should be reckoned from the date of the first rectification order.

17. Let me examine the impugned order in the light of the aforesaid principles. As the subject-matter of these petitions are subsequent orders passed by the authority who passed the original orders and are not orders of any appellate or revisional authority, the doctrine of merger is inapplicable. The original orders were passed on 29th July, 1985. There were rectified on 9th Jan., 1986, in regard to non-allowance of depreciation at the instance of petitioner. The assessing authority passed a second set of rectification orders dt. 13th March, 1991, in pursuance of notices dt. 21st Aug., 1990, in regard to six matters, which had nothing to do with the subject-matter of the first order of rectification dt. 9th Jan., 1986, which related to depreciation. He again passed a third set of rectification orders dt. 3rd May, 1991, in pursuance of notices dt. 26th Nov., 1990 in regard to disallowance of interest, which is also a matter which had nothing to do with the subject-matter of the first rectification dt. 9th Jan., 1986. Therefore, to find out whether the second and third rectifications were in time, the period of five years has to be calculated from the date of original orders (29th July, 1985) and not from the date of the first order of rectification (9th Jan., 1986). The contention that the original order of assessment dt. 29th July, 1985, merged with the first order of rectification dt. 9th Jan., 1986, and, therefore, the period of five years should be calculated from 9th Jan., 1986, and not from 29th July, 1985, is not tenable as there is no 'merger' in regard to orders of rectification. Even on applying the decision of the Supreme Court in International Cotton Corporation (supra), the date of the first order of rectification (9th Jan., 1986) will be the starting point only if the second rectification related to subject-matter of the first rectification. If the subject-matter of the subsequent rectification is not the subject-matter of the first rectification, then necessarily the five years period will have to be calculated from the order of assessment dt. 29th July, 1985. The subject-matter of second and third rectifications which were initiated by the notice dt. 21st Aug., 1990 and 26th Nov., 1990, resulting in the orders dt. 13th March, 1991, and 3rd May, 1991, have no connection to the subject-matter of the rectification order dt. 9th Jan., 1986. The initiation of rectification proceedings by notices dt. 21st Aug., 1990, and 26th Nov., 1990 and orders dt. 13th March, 1991, and 3rd May, 1991, are, therefore, barred by time. Hence, these petitions are allowed. Annexures 'E', 'E1' and 'E2', dt. 13th March, 1991 in WP Nos. 11430-3211991 and Annexures 'M', 'M1', and 'M2', dt. 3rdMay, 1991, in WPNos. 13866-6811991, are hereby quashed.”

9.9 The Hon’ble Bombay High Court in the case of CIT v. Sakseria Cotton Mills Ltd. reported in 124 ITR 570 (Bom.) has also taken a similar view. The relevant finding of the Hon’ble Bombay High Court reads as follow:-

"13. We are, therefore, of the view that in so far as the grant of rebate to the assessee was concerned, the order of the ITO dt. 23rd Nov., 1956, was not in any way affected by the order of the AAC dt. 10th March, 1961. That part of the order of the ITO remained intact. It continued to have an independent existence. It had not merged with the order of the AAC. Any rectification made in respect of that part of the order was required to be made within four years from 23rd Nov., 1956. The limitation for exercising powers of rectification under s. 154 could not, therefore, commence from 10th March, 1961, when the ITO made 'an order which was restricted only to carrying out the directions given by the AAC. It is obvious, therefore, that the rectification order made on 8th March, 1965, was clearly beyond a period of four years provided by s.154(7) of the I.T.Act, 1961.”

9.10 In the light of our aforesaid reasoning and judicial pronouncements cited supra, we hold that since computation of deduction u/s 80IA (of Income Tax Act, 1961) was never the subject matter of issue / dispute in any proceeding u/s 263 (of Income Tax Act, 1961), u/s 254 (of Income Tax Act, 1961) or in A.O.’s order u/s 143(3) (of Income Tax Act, 1961) r.w.s. 254 (of Income Tax Rules, 1962) of the I.T.Act, limitation u/s 154(7) (of Income Tax Act, 1961), would have to be reckoned from the date of original assessment order dated 10.02.2005 passed u/s 143(3) (of Income Tax Act, 1961). Therefore, rectification order dated 28.03.2012 would be barred by limitation u/s 154(7) (of Income Tax Act, 1961). It is ordered accordingly.

9.11 The other grounds raised are not adjudicated, since we have held that the rectification order dated 28.03.2012 is barred by limitation.

10. In the result, the appeal filed by the assessee is partly allowed.

Order pronounced on this 11th day of January, 2021.