2008 (2) TMI 373 - HC - Income Tax

Jurisdiction of CIT to pass order u/s 263 - preconditions for exercise of jurisdiction u/s 263 were not fulfilled AO partially disallowing the claim u/s 80I Commissioner (Appeals) allowed the appeal of assessee against the AO s order subsequently, Commissioner u/s 263 in revision order disallowed the claim since it is not a case of an order prejudicial to revenue, Tribunal is not justified in upholding the exercise of powers under section 263 by Commissioner of Income Tax to be valid

Issues Involved:
1. Jurisdiction of Commissioner of Income Tax under section 263.
2. Use of tanks for warehouse purposes and their valuation under section 80-I(2)(ii).
3. Application of the 20% cut-off limit for old plant and machinery in new industrial undertakings.
4. Treatment of tanks received on retirement as a transfer under section 80-I.
5. Tribunal's observation on the continuation of tax holiday in subsequent years.

Issue-Wise Detailed Analysis:

1. Jurisdiction of Commissioner of Income Tax under section 263:
The primary issue revolved around whether the Commissioner of Income Tax (CIT) had the jurisdiction to pass an order under section 263 of the Income Tax Act, 1961. The assessee argued that once the issue of deduction under section 80-I had been considered by the Assessing Officer (AO) and subsequently by the Commissioner (Appeals), the assessment order merged with the appellate order. Therefore, under Explanation (c) to section 263, the CIT did not have jurisdiction to revise the assessment order on the same subject matter. The court agreed with the assessee, emphasizing that the entire section 80-I, including sub-section (2), forms a comprehensive scheme for deciding eligibility and computation of the relief. The court concluded that the Tribunal erred in upholding the CIT's jurisdiction under section 263, as the matter had already been considered and decided in the appeal.

2. Use of tanks for warehouse purposes and their valuation under section 80-I(2)(ii):
The Tribunal had rejected the assessee's claim that the tanks in question were used for warehouse purposes and thus should not be considered for the purpose of section 80-I(2)(ii). The court did not delve into the merits of this issue as it had already concluded that the CIT lacked jurisdiction under section 263, rendering this issue moot.

3. Application of the 20% cut-off limit for old plant and machinery in new industrial undertakings:
The Tribunal applied the statutory cut-off limit of 20% for old plant and machinery used in the new industrial undertaking. The assessee contended that the new industrial undertaking was not formed by reconstruction, restructuring, or splitting up of the old business. Again, the court did not address this issue in detail due to its decision on the jurisdictional issue.

4. Treatment of tanks received on retirement as a transfer under section 80-I:
The Tribunal had considered the value of the tanks received by the assessee on retirement from firms as a transfer within the meaning of section 80-I. The court did not need to address this issue separately, given its ruling on the CIT's lack of jurisdiction under section 263.

5. Tribunal's observation on the continuation of tax holiday in subsequent years:
The Tribunal had observed that the tax holiday might not continue in subsequent years as future matters would be decided on merit based on facts and figures. The court did not find it necessary to discuss this observation in light of its decision on the primary jurisdictional issue.

Conclusion:
The court concluded that the Tribunal committed an error in upholding the exercise of powers under section 263 by the CIT. The Tribunal's decision was set aside, and the reference was disposed of accordingly. The court did not address the merits of the other issues due to its finding on the jurisdictional question.

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