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2007 (6) TMI 232 - AT - Income TaxRevision u/s 263 - Computation of total income u/s 115JB - Claimed deduction u/s 80-IB - Merger With Appellate Order - the learned CIT has power to assume jurisdiction u/s 263 in view of the doctrine of merger and whether the order of the AO in this case has merged with the order of the learned CIT(A) on the issue of deduction u/s 80-IB or not ? - No dispute to the fact that while working out the claim of deduction u/s 80-IB of the Act, the assessee itself had added back the amount of depreciation to the P L a/c - HELD THAT - It is the settled proposition of law that the CIT(A) has plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the AO. He can do what the AO can do and can also direct him to do what he has failed to do. decision in the case of CIT v. Kanpur Coal Syndicate 1964 (4) TMI 18 - SUPREME COURT . Therefore, in our opinion, when the issue of deduction u/s 80-IB was before the learned CIT(A) he is presumed to have applied his mind regarding the deduction u/s 80-IB as a whole. We find that the Hon'ble apex Court in the case of State of Madras v. Madurai Mills Co. Ltd. 1966 (10) TMI 119 - SUPREME COURT held that the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by an inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. The application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provision conferring the appellate or revisional jurisdiction. We are of the considered opinion that since the matter regarding deduction u/s 80-IB was a subject-matter of appeal before the learned CIT(A), therefore, the order of the AO on the issue of deduction u/s 80 IB as a whole had merged with that of the order of the learned CIT(A) and therefore, by virtue of Expln. (c) to s. 263 of the IT Act the learned CIT had no power to assume jurisdiction u/s 263 of the IT Act on the issue of deduction u/s 80-IB of the Act. Since the assessee succeeds on this legal issue regarding assuming of jurisdiction by CIT u/s 263 on the issue of deduction u/s 80-IB the alternative submission of the assessee regarding allowability of depreciation from business profits in case depreciation has to be considered for 80-IB deduction becomes academic in nature and therefore the same is not dealt with separately. Claim of interest - delayed payment - We find that there is no discussion at all either in the body of the assessment order or in the appellate order. Nothing was brought to our notice at the time of hearing of the appeal to state whether the AO has applied his mind on this issue or not. Therefore, the order of the learned CIT on this issue in our opinion is justified and accordingly upheld. Calculation of profit u/s 115JB - We find there is no dispute to the fact that the assessee is following this system of accounting year after year for the purpose of calculation of taxable income. This otherwise shows that a portion of the expenditure on account of advertisement and sales promotion debited in the P L a/c remains as unascertained liability. We do not find from the order of the AO or CIT(A) that this aspect has ever been discussed by either of them. Nothing was brought to our notice that the AO has applied his mind on this issue or not. Therefore, the order of the learned CIT on this issue is also upheld. In the result, the appeal filed by the appellant is partly allowed.
Issues Involved:
1. Deduction under section 80-IB 2. Apportionment of expenses 3. Claim of interest on delayed payment as revenue expenditure 4. Calculation of profit under section 115JB Issue-wise Detailed Analysis: 1. Deduction under section 80-IB: The primary issue was whether the CIT had the power to assume jurisdiction under section 263 concerning the deduction under section 80-IB. The CIT found that the assessee had not considered depreciation in the computation of business income, resulting in a higher deduction under section 80-IB. The assessee argued that the issue of deduction under section 80-IB had already been considered by the CIT(A), and thus, the CIT had no jurisdiction under section 263. The tribunal noted that the CIT(A) had indeed discussed and upheld the allocation of expenses and depreciation for the purpose of section 80-IB in previous years. Citing the doctrine of merger and relevant case law, the tribunal concluded that since the matter of deduction under section 80-IB was already subject to appeal, the CIT did not have the power to assume jurisdiction under section 263 for this issue. 2. Apportionment of expenses: The CIT directed the AO to apportion the expenses related to the head office and administrative office on a pro-rata basis of the turnover of the units to the total turnover while calculating the profits attributable to the units eligible for deduction under section 80-IB. The assessee contended that the CIT(A) had partially discussed and given relief on this issue, and therefore, the CIT could not assume jurisdiction under section 263. The tribunal agreed with the assessee, noting that the CIT(A) had indeed addressed the allocation of corporate office expenses in his order. Thus, the tribunal held that the CIT had no jurisdiction under section 263 to revise the assessment order on this issue. 3. Claim of interest on delayed payment as revenue expenditure: The CIT found that the assessee had claimed interest expenditure on delayed payment for acquiring brand names and trademarks, which was treated as a capital receipt by the recipient. The assessee argued that the interest was allowable as a deduction under section 37(1). The tribunal observed that there was no discussion in the assessment or appellate order regarding the allowability of this interest. Since it was not evident whether the AO had applied his mind to this issue, the tribunal upheld the CIT's order to disallow the interest claim, agreeing that the CIT had validly assumed jurisdiction under section 263 for this matter. 4. Calculation of profit under section 115JB: The CIT noted that the assessee had not added back a provision made in the accounts of the earlier year for advertisement, sales promotion, and distribution expenses while computing the profit for section 115JB. The assessee argued that adjustments made for taxable income under normal provisions were irrelevant for section 115JB and that the accounts were prepared and certified under the Companies Act. The tribunal found that the assessee's system of accounting indicated that a portion of the expenditure remained as an unascertained liability. Since the AO and CIT(A) had not discussed this aspect, and it was unclear if the AO had considered it, the tribunal upheld the CIT's order to include the provision while calculating the book profit under section 115JB. Conclusion: The tribunal partly allowed the appeal filed by the assessee. It ruled that the CIT had no jurisdiction under section 263 regarding the deduction under section 80-IB due to the doctrine of merger. However, it upheld the CIT's order on the issues of interest on delayed payment and the calculation of profit under section 115JB, finding that these aspects were not adequately addressed by the AO or CIT(A).
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