1986 (4) TMI 86 - AT - Income Tax

Summary

Issues: Jurisdiction of Commissioner under section 263, Validity of assessment passed under directions of IAC, Interpretation of Explanation added to section 263

Jurisdiction of Commissioner under section 263:
The appeal involved a challenge to the Commissioner's order under section 263 of the Income-tax Act, 1961. The Commissioner found the regular assessment for 1979-80 to be erroneous and prejudicial to the revenue's interests. The assessee contended that the Commissioner lacked jurisdiction as the assessment was made in accordance with the IAC's directions under section 144B. The Commissioner held that section 144B directions were procedural and the final assessment by the ITO was revisable under section 263. The Tribunal considered the Special Bench decision in East Coast Marine Products (P.) Ltd. case and held that the Commissioner lacked jurisdiction under section 263.

Validity of assessment passed under directions of IAC:
The assessee argued that the assessment was an 'agreed assessment' based on a letter consenting to an addition of Rs. 80,000 to avoid litigation, and thus, the revenue could not revisit it under section 263. The Commissioner referred to precedents and the nature of section 144B directions as procedural. The Tribunal analyzed the Explanation added to section 263 by the Taxation Laws (Amendment) Act, 1984, and held that the Commissioner could not revise an assessment made in accordance with IAC's directions under section 144B.

Interpretation of Explanation added to section 263:
The Tribunal discussed the Explanation added to section 263 and its retrospective effect. The revenue argued that the Explanation clarified the pre-existing position in law. However, the assessee contended that the Explanation could not be retrospective as per the amending statute's effective date. The Tribunal considered the nature of section 263 dealing with substantive law and held that the Explanation could not be retrospective, following precedents like East Coast Marine Products (P.) Ltd. case and Madanlal Chaganlal (P.) Ltd. case. The Tribunal set aside the Commissioner's order under section 263 based on jurisdictional grounds.

In conclusion, the Tribunal allowed the appeal, setting aside the Commissioner's order under section 263 due to the lack of jurisdiction. The assessment made under the IAC's directions under section 144B was deemed valid, and the Explanation to section 263 was interpreted to not have retrospective effect. The Tribunal's decision was based on legal precedents and the nature of the provisions involved.