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Cit v. Shri Arbuda Mills Ltd.
Factual and Procedural Background
The Income Tax Appellate Tribunal referred a question of law to the Court under Section 257 of the Income Tax Act, 1961. The assessee is a company, and the relevant assessment year is 1975-76 (ending on 31-12-1974). The assessment was completed under Section 143(3) read with Section 144-B on 31-3-1978, computing a net business loss of Rs 3,61,086 and capital gains income of Rs 38,874.
While the Income Tax Officer made certain additions and disallowances, the officer also accepted three claims that are relevant to the present matter: (i) deduction of Rs 23,82,621 as provision for gratuity; (ii) depreciation on Rs 4,21,000 paid as consideration for transfer of installed property (17,480 spindles and 400 looms) of Old Manek Chowk Mills; and (iii) loss due to exchange-rate difference related to purchase of machinery etc., treated as revenue expenditure.
The assessee filed appeals, but the items decided in its favour (including these three claims) were not the subject-matter of the appeals. In respect of these three items, the Commissioner exercised revisional power under Section 263, giving rise to the question whether the Commissioner’s jurisdiction under Section 263 was excluded due to “merger” of the assessment order with the appellate order of the Commissioner (Appeals) dated 15-12-1979.
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the assessment order passed under Section 143(3) read with Section 144-B had merged with the order of the Commissioner (Appeals) (in respect of the three disputed items) so as to exclude the jurisdiction of the Commissioner of Income Tax under Section 263.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court focused on the effect of the amendment to Section 263 introduced by the Finance Act, 1989, with retrospective effect from 1-6-1988. It extracted and applied Explanation (c), which declares (for removal of doubts) that where an order of the Assessing Officer has been the subject-matter of any appeal (filed on or before or after 1-6-1988), the Commissioner’s powers under Section 263 extend—and are deemed always to have extended—to matters that had not been considered and decided in such appeal.
Applying this statutory clarification, the Court reasoned that even though the assessee had filed an appeal, the three items in question were not considered and decided in that appeal (as they were not appealed because they were in the assessee’s favour at assessment stage). Consequently, the Commissioner’s revisional jurisdiction under Section 263 extended (and was deemed always to have extended) to those items. The Court treated this as sufficient to answer the referred question.
Holding and Implications
ANSWERED IN THE NEGATIVE in favour of the Revenue and against the assessee.
The direct consequence is that the Commissioner’s jurisdiction under Section 263 was not excluded in respect of the three items merely because an appellate order existed; Section 263 could extend to matters not considered and decided in the appeal. The opinion does not discuss any broader implications beyond resolving the referred question on the basis of the retrospective statutory amendment.
1. The Income Tax Appellate Tribunal has referred under Section 257 of the Income Tax Act, 1961 the following question of law for decision of this Court, namely:
“Whether on the facts and in the circumstances of the case, the order of assessment passed by the ITO under Section 143(3) read with Section 144-B on 31-7-1978 had merged with that of the Commissioner (Appeals) dated 15-12-1979 in respect of the three items in dispute so as to exclude the jurisdiction of the Commissioner of Income Tax under Section 263?”
2. The assessee is a company. The relevant assessment year is 1975-76 ending on 31-12-1974. The assessment was completed under Section 143(3) read with Section 144-B on 31-3-1978 in which the net business loss was computed at Rs 3,61,086 and the income under the head “capital gains” at Rs 38,874. The Income Tax Officer had made certain additions and disallowances while computing the loss and income as above and had also accepted, inter alia, the following three claims:
(i) Deduction of a sum of Rs 23,82,621 by way of provision for gratuity;
(ii) Depreciation on Rs 4,21,000 which was paid by the assessee to United Textile Industries as consideration for transfer of installed property of 17,480 spindles and 400 looms of Old Manek Chowk Mills;
(iii) Loss on account of difference in exchange rate which was referable to the purchase of machinery etc. as revenue expenditure.
For the purposes of the present matter, it is only these three items of claim which are relevant.
3. In the appeals filed by the assessee, the items in respect of which the decision was in its favour were not the subject-matter of the appeals. In respect of these three items the Commissioner exercised his power under Section 263 of the Income Tax Act. The above question arises in this context.
4. The main contention of the assessee which was considered by the Tribunal was whether or not the order of the Income Tax Officer regarding the said three items in respect of which the assessee had no occasion to prefer an appeal had merged in that of the Commissioner on appeal so as to exclude the jurisdiction of the Commissioner of Income Tax under Section 263 of the Act.
5. We may refer to the amendment made in Section 263 of the Income Tax Act by the Finance Act, 1989 with retrospective effect from 1-6-1988. The relevant part thereof for the present case is as under:
“Explanation.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section—
(a)-(b)***
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal (filed on or before or after the 1st day of June, 1988), the powers of the Commissioner under this sub-section shall extend (and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal).”
The consequence of the said amendment made with retrospective effect is that the powers under Section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under Section 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. This is sufficient to answer the question which has been referred.
6. The question referred is, therefore, answered in the negative in favour of the Revenue and against the assessee.
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