1986 (2) TMI 342 - AT - Income Tax

Summary

Issues:
1. Entitlement to investment allowance and classification as an industrial company.
2. Jurisdiction of the Commissioner of Income Tax (CIT) to revise assessment orders.
3. Merger of assessment order with CIT(A) order for the assessment year 1978-79.
4. Tax effect and prejudicial impact on revenue for the assessment year 1979-80.

Detailed Analysis:

1. The primary issues in this case revolve around the entitlement of the assessee to investment allowance and the classification of the company as an industrial company. The CIT, in exercising powers under section 263 of the Income Tax Act, 1961, directed the withdrawal of investment allowance and application of the tax rate applicable to non-industrial companies. The CIT found the original assessment by the Income Tax Officer (ITO) erroneous and prejudicial to the revenue's interest. The assessee contended that the directions in the original assessment were correct and challenged the CIT's jurisdiction to revise the assessment order on these grounds. The Tribunal analyzed the definition of an industrial company and the interpretation of the term "business of construction" to determine the entitlement to investment allowance. Relying on precedents and decisions, the Tribunal held that the assessee was entitled to the investment allowance, and the CIT's directions to withdraw it were unsustainable.

2. Regarding the classification of the assessee as an industrial company, the Tribunal examined the definition provided in the relevant Finance Act and relevant case law. While the assessee argued against the classification based on its activities, the Tribunal upheld the CIT's decision that the company did not qualify as an industrial company. The Tribunal emphasized adherence to the Bombay High Court's decision on this matter, despite contrary views from other High Courts. Consequently, the Tribunal supported the CIT's decision that the assessee was not eligible for treatment as an industrial company for tax rate purposes.

3. For the assessment year 1979-80, the Tribunal considered the tax effect and the prejudicial impact on revenue due to the withdrawal of investment allowance. Despite finding the ITO's order erroneous, the Tribunal concluded that the net income would remain unaffected even if the investment allowance was withdrawn. As a result, the Tribunal determined that the CIT should not have exercised powers under section 263 for this assessment year due to the absence of a prejudicial impact on revenue.

4. In the case of the assessment year 1978-79, the Tribunal highlighted technical grounds that prevented the CIT from exercising powers under section 263. Specifically, the Tribunal noted that the assessment order had merged with the CIT(A) order before the CIT could exercise revisionary powers. Citing a precedent, the Tribunal concluded that the CIT's exercise of powers under section 263 was not justified for this assessment year.

In conclusion, the Tribunal allowed the appeals for the assessment years 1978-79 and 1979-80, and partly allowed the appeal for the assessment year 1980-81 based on the detailed analysis of the issues surrounding entitlement to investment allowance, classification as an industrial company, jurisdiction of the CIT, tax effect, and merger of assessment orders with CIT(A) decisions.