1986 (11) TMI 74 - AT - Income Tax

Issues Involved:
1. Validity of the Commissioner's order under Section 263 of the Income-tax Act, 1961.
2. Correct computation of profits under Section 41(2) of the Income-tax Act, 1961.
3. Authority of the IAC to issue directions under Section 144A of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Commissioner's Order under Section 263:
The assessee challenged the order of the Commissioner passed under Section 263 of the Income-tax Act, 1961. The Commissioner had initiated proceedings under Section 263, believing the ITO should have considered the entire sale amount of Rs. 13 lakhs for computing profits under Section 41(2) rather than Rs. 9,44,816 as calculated by the assessee. The Commissioner concluded that amounts transferred to the purchaser for contingency reserve, development reserve, and regular payment deposits were liabilities and not deductible from the sale price. The Tribunal upheld the Commissioner's order, noting that the ITO's assessment was erroneous and prejudicial to the revenue's interests. The Tribunal emphasized that the Commissioner had correctly directed the ITO to recompute the profits under Section 41(2) in accordance with the law.

2. Correct Computation of Profits under Section 41(2):
The assessee initially computed profits under Section 41(2) at Rs. 2,40,001. In the reassessment, the ITO, following directions from the IAC under Section 144A, recalculated the profits at Rs. 2,88,852. The Commissioner, however, found this recalculation erroneous as it did not comply with his earlier order under Section 263, which mandated considering the entire sale amount of Rs. 13 lakhs. The Tribunal agreed with the Commissioner, stating that the ITO should have adhered to the Commissioner's directive to include the full sale amount in the computation. The Tribunal also noted that the assessee had not appealed the initial Section 263 order, making its findings conclusive.

3. Authority of the IAC to Issue Directions under Section 144A:
The assessee argued that since the ITO framed the assessment as per the IAC's directions under Section 144A, the Commissioner had no power to revise the order. The Tribunal dismissed this argument, clarifying that the IAC's directions under Section 144A could not override the Commissioner's earlier order under Section 263. The Tribunal highlighted that Section 144A allows the IAC to issue directions before the assessment is framed, whereas Section 144B pertains to directions on a draft assessment. The Tribunal concluded that the IAC had exceeded his authority by interfering with the Commissioner's directives, and the Commissioner's order under Section 263 was valid and enforceable.

Conclusion:
The Tribunal dismissed the appeal, upholding the Commissioner's order under Section 263. The Tribunal found that the ITO's reassessment did not comply with the Commissioner's directives, and the IAC's directions under Section 144A were not valid in this context. The Tribunal emphasized the need to consider the entire sale amount of Rs. 13 lakhs for computing profits under Section 41(2), aligning with the Commissioner's initial findings.

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