1995 (5) TMI 49 - AT - Income Tax

Assessing Officer, Claim For Depreciation, Commissioner To Revise, Fixed Assets, Investment Allowance, Orders Prejudicial To Interests, Original Assessment, Revenue Expenditure

Issues Involved:
1. Validity of reassessment orders under section 147(a).
2. Jurisdiction of the CIT under section 263.
3. Applicability of amended section 263 to orders passed before 1-10-1984.
4. Disallowance of depreciation and investment allowance based on fractional ownership of assets.
5. Time limit for exercising powers under section 263.

Detailed Analysis:

1. Validity of Reassessment Orders under Section 147(a):
The appellants argued that the reassessment orders passed under section 147(a) were not erroneous. They contended that the reassessment was initiated solely to disallow 'ash disposal' expenses, and the Assessing Officer could not disallow depreciation and investment allowance during this reassessment. The appellants cited the case of Seth Banarsi Das Gupta v. CIT [1987] 166 ITR 783 (SC) to support their claim that the reassessment should be confined to the specific issue for which it was initiated.

2. Jurisdiction of the CIT under Section 263:
The CIT assumed jurisdiction under section 263, arguing that the reassessment orders were erroneous and prejudicial to the interests of the revenue because depreciation and investment allowance were allowed on assets not fully owned by the appellants. The appellants contended that the CIT misinterpreted the ratio decidendi of V Jaganmohan Rao v. CIT/CEPT [1970] 75 ITR 373, which the CIT used to justify his actions. The appellants argued that the CIT could not revise the reassessment orders to disallow depreciation and investment allowance, as the reassessment under section 147(a) should be limited to the issue of 'ash disposal' expenses.

3. Applicability of Amended Section 263 to Orders Passed Before 1-10-1984:
The appellants contended that the original assessment orders were passed before 1-10-1984, and thus, the provisions of section 263 as they stood before this date should apply. They argued that the amendment to section 263, which extended the time limit for revision, should not apply retrospectively. They cited Circular No. 402 of the CBDT and the Supreme Court decision in CED v. M.A. Merchant [1989] 177 ITR 490 to support their position that the amendment could not affect vested rights.

4. Disallowance of Depreciation and Investment Allowance Based on Fractional Ownership of Assets:
The CIT disallowed the depreciation and investment allowance on the grounds that the appellants were only fractional owners of the assets. This decision was based on the Supreme Court ruling in Seth Banarsi Das Gupta, which stated that depreciation is admissible only when the assessee is the full owner of the property, not for fractional ownership. The appellants argued that this issue should have been raised under section 147(b) and not under section 147(a).

5. Time Limit for Exercising Powers under Section 263:
The appellants highlighted the significant time lag between the original assessment orders and the orders under section 263, ranging from 12 to 20 years. They argued that the CIT's powers under section 263 should be exercised within a reasonable time to avoid undue hardship and uncertainty. They cited the Supreme Court decision in Parashura Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1, which emphasized the need for finality in legal proceedings.

Conclusion:
The tribunal concluded that the conditions precedent for assuming jurisdiction under section 263 did not exist. The CIT's actions were found to be based on a misinterpretation of legal principles and an erroneous application of the law. The tribunal emphasized that the CIT's powers under section 263 should be exercised within the prescribed time limit to bring finality to legal proceedings. Consequently, the impugned orders were quashed, and all the appeals were allowed.

Result:
All the appeals stand allowed.

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