1995 (3) TMI 8 - HC - Income Tax

Assessment Power Of IAC New Industrial Undertaking Special Deduction Manufacture Of Article Textile Business

Summary

Issues Involved:
1. Jurisdiction of Inspecting Assistant Commissioner under section 144A during the pendency of a reference under section 144B(4).
2. Allowance of depreciation and initial depreciation under section 32(1)(vi) of the Income-tax Act, 1961.
3. Relief under section 80J of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Jurisdiction of Inspecting Assistant Commissioner under section 144A during the pendency of a reference under section 144B(4):

The Tribunal held that once a reference under section 144B is made, the operation of section 144A is excluded. The Tribunal reasoned that the action under section 144A is possible only until the draft assessment order stage. The court, however, disagreed with this interpretation. It was argued by the Revenue that the jurisdiction of the Inspecting Assistant Commissioner is coterminal with the completion of assessment before the Income-tax Officer. The court noted that the assessment is not complete until an effective order is passed by the Income-tax Officer under section 144B(3) or 144B(5). The court emphasized that the power under section 144A to issue directions for the guidance of the Income-tax Officer exists throughout the period during which the assessment is pending. The court concluded that the completed assessment comes into existence only after proceedings under section 144B are concluded and an effective order is issued. Therefore, the Inspecting Assistant Commissioner retains jurisdiction to issue directions under section 144A until the assessment is completed. Consequently, question No. 1 was answered in the negative, in favor of the Revenue and against the assessee.

2. Allowance of depreciation and initial depreciation under section 32(1)(vi) of the Income-tax Act, 1961:

The Tribunal allowed the claim of the assessee for depreciation/initial depreciation in respect of three machines without examining the claim on the merits, based on its finding that the Inspecting Assistant Commissioner could not issue directions under section 144A during the pendency of a reference under section 144B. Since the court answered question No. 1 in favor of the Revenue, it held that the merits of the depreciation claim need to be examined. Therefore, the Tribunal is required to decide the issue of depreciation on the merits. As a result, question No. 2 was also answered in the negative, in favor of the Revenue and against the assessee.

3. Relief under section 80J of the Income-tax Act, 1961:

The court noted that both learned counsel agreed that question No. 3 is covered by the decision in CIT v. J. B. Kharwar and Sons [1987] 163 ITR 394. In that case, it was held that subjecting grey cloth to dyeing and printing transformed it into a new commodity commercially known as a distinct and separate commodity. This transformation was sufficient to qualify as manufacture or production of an article within the meaning of section 80J(4)(iii) of the Act. The court agreed with this interpretation and answered question No. 3 in the affirmative, in favor of the assessee and against the Revenue.

Conclusion:

The court answered question No. 1 in the negative, holding that the Inspecting Assistant Commissioner retains jurisdiction under section 144A until the assessment is completed. Consequently, question No. 2 was also answered in the negative, requiring the Tribunal to examine the merits of the depreciation claim. Question No. 3 was answered in the affirmative, affirming the assessee's entitlement to relief under section 80J. The reference was answered accordingly, with no order as to costs.