1985 (7) TMI 129 - AT - Income Tax

Summary

Issues:
Jurisdiction of the CIT under section 263 of the Income Tax Act, 1961 regarding the assessment order made by the ITO and its merger with the order of the CIT(A).

Analysis:

1. The Income Tax Officer (ITO) made an assessment for a particular assessment year, adding back a sum for capital gains on the sale of jewellery. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)] for relief on other items, and some exemption was allowed. Subsequently, the CIT issued a notice under section 263 of the Income Tax Act, 1961, considering the ITO's order as erroneous and prejudicial to revenue. The CIT directed the ITO to modify the assessment, adding undisclosed income from the sale of jewellery and initiating penalty proceedings for income concealment.

2. The CIT discussed the legal question of whether the ITO's assessment order had merged with the CIT(A)'s order, thus affecting the CIT's jurisdiction under section 263. The CIT relied on various court decisions and held that the orders had not merged, allowing him to proceed with the revision under section 263.

3. The assessee challenged the CIT's order, arguing that the assessment order had merged with the CIT(A)'s order, citing the decision of the Allahabad High Court in J.K. Synthetics Ltd. The Department contended that the CIT rightly distinguished the mentioned case and presented judgments supporting their stance.

4. The Tribunal analyzed the case law, particularly the decision in J.K. Synthetics Ltd., where the High Court held that the assessment order merged with the CIT(A)'s order, limiting the CIT's jurisdiction under section 263. Relying on this precedent, the Tribunal concluded that the CIT did not have the authority to revise the assessment in this case.

5. As the Tribunal found in favor of the assessee on the jurisdictional issue, it did not delve into the other grounds raised in the appeal. Consequently, the appeal was allowed, and the decision of the CIT to revise the assessment under section 263 was deemed invalid based on the principle of merger established in the J.K. Synthetics Ltd. case.