1986 (9) TMI 22 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the Commissioner's jurisdiction u/s 263 during pending reassessment proceedings.
2. Merger of the Income-tax Officer's order with the Appellate Assistant Commissioner's order.
3. Treatment of carried forward business losses.

Summary:

1. Validity of the Commissioner's jurisdiction u/s 263 during pending reassessment proceedings:
The Commissioner issued a notice u/s 263, stating that the original assessment order and the subsequent rectification order u/s 154 were erroneous and prejudicial to the interests of the Revenue. The assessee contended that since reassessment proceedings were initiated u/s 148, the Commissioner had no jurisdiction to revise the assessment u/s 263. The Tribunal rejected this contention, holding that the initiation of reassessment proceedings did not preclude the Commissioner's jurisdiction u/s 263. However, the High Court disagreed, stating that once reassessment proceedings are initiated, the original order of assessment loses its finality and is no longer open for revision by the Commissioner.

2. Merger of the Income-tax Officer's order with the Appellate Assistant Commissioner's order:
The assessee argued that the original assessment order had merged with the Appellate Assistant Commissioner's order, thus precluding the Commissioner from revising it u/s 263. The Tribunal held that the order of the Income-tax Officer had merged with the Appellate Assistant Commissioner's order only to the extent of the subject matter of the appeal. The High Court, however, held that the entire assessment order merges with the appellate order, including matters affirmed by the appellate authority. Therefore, the Commissioner had no jurisdiction to revise the assessment u/s 263 once the order had merged with the Appellate Assistant Commissioner's order.

3. Treatment of carried forward business losses:
The Income-tax Officer initially set off carried forward business losses against income from other sources, which was later corrected to set off only against business income. The Commissioner found no material to support the Income-tax Officer's conclusion that the sub-lease income was business income and directed a fresh inquiry. The Tribunal upheld the Commissioner's direction. The High Court noted that the question of setting off carried forward business losses was within the purview of the appellate authority and thus merged with the appellate order, precluding the Commissioner's revision u/s 263.

Conclusion:
The High Court held that the Commissioner had no jurisdiction to revise the assessment u/s 263 once reassessment proceedings were initiated and the original assessment order had merged with the Appellate Assistant Commissioner's order. The question referred was answered in the negative and in favor of the assessee.