1985 (6) TMI 40 - AT - Income Tax

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 263 of the IT Act, 1961.
2. Rectification of unabsorbed deficiency under Section 80J.
3. Determination of cost of building and machinery considering subsidy.
4. Examination of Bank Guarantee expenditure.
5. Verification of Guest House Expenses.
6. Verification of various other expenses (Diwali, legal, office, commission, and payment to N. L. Vaidya).
7. Setting aside the assessment.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 263:
The appellant argued that the Commissioner of Income Tax (CIT) erred in assuming jurisdiction under Section 263, as the Income Tax Officer's (ITO) order was not erroneous. The tribunal found that the assessment was completed under Section 143(3) read with Section 144-B, making the CIT's assumption of jurisdiction illegal. The tribunal cited the Special Bench decision in East Coast Marine Products Pvt. Ltd. vs. ITO, which held that the CIT could not revise an order completed under Section 144-B.

2. Rectification of Unabsorbed Deficiency under Section 80J:
The CIT identified an error where the ITO set off Rs. 3,11,524 against the profit, which was incorrect as the carry forward of Section 80J deficiency of earlier years had already been exhausted. The tribunal agreed that this was a mistake apparent from the record, rectifiable under Section 154. The tribunal referenced the Delhi High Court decision in Addl. CIT vs. J. K. D' Costa, which supported the view that minor omissions do not justify setting aside the entire assessment.

3. Determination of Cost of Building and Machinery Considering Subsidy:
The CIT held that the subsidy received should be deducted from the cost of machinery and building for depreciation purposes. The tribunal disagreed, noting that the ITO had relied on decisions from the Madras and Bombay Benches, which held that subsidy does not reduce the cost for depreciation purposes. The tribunal also cited the Special Bench decision in Pioneer Match Works vs. ITO, supporting the ITO's stance.

4. Examination of Bank Guarantee Expenditure:
The CIT directed the ITO to verify whether the Bank Guarantee Commission was capital or revenue expenditure. The tribunal found that the details were already before the ITO and that the commission was related to revenue transactions, such as discounting bills for exports. The tribunal held that the expenditure was allowable as revenue expenditure, dismissing the CIT's concern.

5. Verification of Guest House Expenses:
The CIT noted a discrepancy in the guest house expenses disallowed by the ITO. The tribunal found that the assessee had already disallowed the amount in its computation, and the ITO had made a mistake adverse to the assessee. Therefore, no further verification was required.

6. Verification of Various Other Expenses:
The CIT directed the ITO to verify details of Diwali expenses, repairs, legal expenses, office expenses, commission, and payment to N. L. Vaidya. The tribunal found that these details were already considered by the ITO, who had disallowed part of the sundry expenses. The tribunal concluded that no further examination was necessary.

7. Setting Aside the Assessment:
The CIT set aside the entire assessment, which the tribunal found unjustified. The tribunal emphasized that the ITO's order was not erroneous and that the CIT's wholesale cancellation of the assessment was improper. The tribunal noted that the ITO acted honestly and based his decisions on relevant material and legal precedents.

Conclusion:
The tribunal held that the assumption of jurisdiction by the CIT under Section 263 was illegal. On merits, the issues were decided in favor of the assessee, except for the rectification under Section 80J, which was conceded. The tribunal set aside the CIT's order, allowing the appeal.