1985 (1) TMI 97 - AT - Income Tax

Summary

Issues:
1. Jurisdiction of CIT under section 263 of the IT Act, 1961.
2. Entitlement to investment allowance on machinery and plant used in business activities.
3. Merger of assessment order in the order of the appellate authority.

Analysis:

Issue 1: Jurisdiction of CIT under section 263 of the IT Act, 1961
The appeal involved a dispute regarding the jurisdiction of the Commissioner of Income Tax (CIT) under section 263 of the IT Act, 1961. The CIT set aside the assessment order, directing a fresh assessment. The assessee contended that the CIT had no jurisdiction under section 263 as the assessment order was under appeal before the CIT(A). The CIT's jurisdiction was challenged as being void ab initio. However, the Departmental Representative argued that the CIT's order was justified as the appeal was pending before the CIT(A) at the time of the CIT's exercise of powers under section 263.

Issue 2: Entitlement to investment allowance on machinery and plant
The dispute also revolved around the entitlement of the assessee to investment allowance on machinery and plant used in the business activities. The assessee claimed that their business activities, involving the conversion of milk into a branded product, amounted to the production or manufacture of an article or thing, making them eligible for investment allowance. Various decisions were cited to support this claim, emphasizing similar cases where investment allowance was allowed. However, the Departmental Representative argued that the end product remained milk, and the activities did not amount to manufacturing or production of a new article, thus challenging the eligibility for investment allowance.

Issue 3: Merger of assessment order in the order of the appellate authority
The question of whether the assessment order had merged in the order of the appellate authority was raised. The CIT's order under section 263 was challenged on the grounds that the assessment order had already merged in the order of the CIT(A). However, it was clarified that on the date of the CIT's order under section 263, the CIT(A) had not yet decided on the appeal against the assessment order. The Tribunal concluded that the CIT's order under section 263 was justified, as the assessment order allowing the investment allowance was deemed erroneous and prejudicial to the revenue's interests.

In conclusion, the Tribunal upheld the CIT's order under section 263, dismissing the appeal. The decision was based on the finding that the assessee's activities did not amount to the manufacture or production of a new article, thus not entitling them to investment allowance on machinery and plant used in the business. The issue of jurisdiction under section 263 and the merger of the assessment order were also addressed and resolved in favor of the CIT's actions.