2006 (9) TMI 604 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of CIT, Shillong u/s 263 of the IT Act, 1961.
2. Taxability of transport subsidy.
3. Validity of suo motu revision by CIT based on subsequent judicial decisions.

Summary:

Jurisdiction of CIT, Shillong u/s 263 of the IT Act, 1961:

The primary issue was whether the CIT, Shillong had the jurisdiction to pass the impugned order dated 25th September 1998 under Section 263 of the IT Act, 1961. The court held that the CIT's power under Section 263 must be exercised based on the material available at the time of exercising the power. Since the assessment orders were based on the prevailing decision of the jurisdictional High Court, they could not be deemed erroneous. The Tribunal erred in holding that the CIT had jurisdiction to pass the impugned order.

Taxability of Transport Subsidy:

The AO had treated transport subsidies for the assessment years 1994-95, 1995-96, and 1996-97 as non-taxable items based on the decision in CIT v. Assam Asbestos Ltd. The CIT, Shillong, later invoked Section 263 following the apex Court's decision in Sahney Steel & Press Works Ltd., which classified operational subsidies as taxable. However, the court noted that the decision in Assam Asbestos Ltd. was still holding the field when the assessment orders were made, and thus, the AO's decision was not erroneous.

Validity of Suo Motu Revision by CIT Based on Subsequent Judicial Decisions:

The court referred to the decision in CIT v. G.M. Mittal Stainless Steel (P) Ltd., which held that the CIT's power under Section 263 cannot be invoked based on subsequent changes in law. The CIT's satisfaction must be objectively justifiable and based on the material available at the time. The court concluded that the CIT erred in treating the AO's decision as erroneous based on the subsequent decision in Sahney Steel & Press Works Ltd.

Conclusion:

The appeals were allowed, and the common question of law was answered in the affirmative and against the Revenue. The impugned orders of the Tribunal were quashed, and the assessment orders dated 21st November 2000 were set aside. The parties were directed to bear their own costs.