1989 (5) TMI 84 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction and Limitation under Section 263 of the Income-tax Act.
2. Procedural Validity of the Commissioner's Order.
3. Merits of the Commissioner's Directions for Reassessment.
4. Deduction of Sales Tax Penalty.

Issue-wise Detailed Analysis:

1. Jurisdiction and Limitation under Section 263 of the Income-tax Act:

The primary issue raised by the assessee was the jurisdiction of the Commissioner to pass the order on 26-3-1985, arguing it was beyond the period of limitation as specified in Section 263(2) of the Income-tax Act. Originally, Section 263(2) prohibited the Commissioner from revising an order after two years from the date of the order sought to be revised. However, this provision was amended by the Taxation Laws (Amendment) Act, 1984, effective from 1-10-1984, changing the limitation period to two years from the end of the financial year in which the order was passed. The assessee contended that the provision as it stood on the date of the assessments should apply, citing the Supreme Court decisions in Commissioner of Sales Tax v. Amarnath Ajitkumar and Garikapati Veeraya v. N. Subbiah Choudhry, which emphasized the preservation of vested rights. The Tribunal, however, held that the amended provision applied as the new law came into force before the period allowed under the earlier law had elapsed, referencing various High Court decisions supporting this view.

2. Procedural Validity of the Commissioner's Order:

The Tribunal considered whether the procedural aspects of the Commissioner's order were valid. It was noted that Section 263 does not prescribe a time limit within which the Commissioner must issue a notice to the assessee. Sub-section (1) of Section 263 merely stipulates the issuance of a notice, while Sub-section (2) provides a period of limitation within which the Commissioner can validly pass an order. The Tribunal concluded that since the amended law was in effect before the original limitation period expired, the Commissioner's order was procedurally valid.

3. Merits of the Commissioner's Directions for Reassessment:

On the merits, the Commissioner directed the Income-tax Officer to reconsider several issues, including the allowance of staff welfare expenditure without examining whether the Trust was recognized. The Commissioner also instructed the Income-tax Officer to consider the retrospective amendment of Section 40A(9). The assessee argued that it had not been heard on the point of the amendment. However, the Tribunal found no prejudice to the assessee, as the Commissioner merely directed the Income-tax Officer to consider the retrospective effect of the amendment, allowing the assessee to present its case during reassessment.

4. Deduction of Sales Tax Penalty:

The issue of sales tax penalty deduction was common to both assessment years. The Commissioner found the Income-tax Officer's order allowing the deduction to be incorrect and directed its disallowance. The assessee did not press this issue during the appeal, leading the Tribunal to uphold the Commissioner's order regarding the disallowance of the sales tax penalty deduction.

Conclusion:

The Tribunal dismissed the appeals, upholding the Commissioner's order on all counts. The Commissioner's jurisdiction under the amended Section 263 was affirmed, the procedural validity of the order was confirmed, and the directions for reassessment and disallowance of the sales tax penalty were found to be justified.