2002 (5) TMI 14 - HC - Income Tax

Whether, Tribunal was justified in cancelling the order passed by the Commissioner of Income-tax under section 263? - Law Applicable - The apex court in CIT v. Shri Arbuda Mills Ltd. has held that the consequence of the 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. In the instant case, it is not in dispute that the Commissioner of Income-tax (Appeals) had not decided the question with respect to bonus, incentive and interest to the partners, the depreciation on generator at 30 per cent. and investment allowance of Rs. 7,554 to the firm in order to fulfil the conditions laid down under section 32A. Thus, the Commissioner of Income-tax has rightly exercised the jurisdiction under section 263 of the Income-tax Act for the purpose of revising the order of the Income-tax Officer on the aforesaid items. - Thus, the question referred is decided in favour of the Revenue and against the assessee.

Summary

Issues:
1. Jurisdiction of the Commissioner of Income-tax to revise an order under section 263.
2. Doctrine of merger in income-tax cases post-amendment.

Analysis:
1. The first issue revolves around the jurisdiction of the Commissioner of Income-tax to revise an order under section 263 of the Income-tax Act. The case involved an ex parte assessment by the Income-tax Officer, which was reopened and subsequently challenged by the assessee before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax found the original assessment erroneous and prejudicial to the Revenue's interests. The assessee contended that the Commissioner had no jurisdiction to revise the order of the Income-tax Officer due to the appellate order's full merger. However, the Commissioner set aside the original order and directed corrections, leading to an appeal before the Income-tax Appellate Tribunal. The Tribunal, considering conflicting judicial opinions, cancelled the assessment order. The High Court, referencing the amendment to section 263(1) of the Income-tax Act, clarified that the principle of merger applies only when a decision by an inferior authority is considered by the appellate authority. As the appellate authority did not address certain issues, the Commissioner rightfully revised the order under section 263, as per the retrospective amendment. The judgment favored the Revenue, upholding the Commissioner's jurisdiction to revise the order.

2. The second issue pertains to the doctrine of merger in income-tax cases post-amendment. The introduction of Explanation clause (c) to section 263(1) clarified the application of the principle of merger. The retrospective amendment ensured that the Commissioner's powers under section 263 extended to matters not considered or decided in an appeal. The apex court's decision in a relevant case confirmed that the Commissioner's jurisdiction under section 263 always encompassed matters not addressed in an appeal. In the present case, since the Commissioner of Income-tax (Appeals) did not decide on specific issues, the Commissioner was justified in revising the original assessment order. The judgment emphasized the retrospective nature of the amendment and upheld the Commissioner's authority to address unresolved matters post-appeal. Ultimately, the High Court ruled in favor of the Revenue, affirming the application of the doctrine of merger post-amendment in income-tax cases.