1992 (9) TMI 120 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act.
2. Doctrine of Merger.
3. Basis of the CIT's action under section 263.
4. Merits of the claims under section 80HHC and section 32A of the Income Tax Act.
5. Scope of the CIT's power to set aside the entire assessment.

Detailed Analysis:

1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263:
The CIT issued a notice under section 263 proposing to revise the assessment made on 24-2-1986. The grounds were:
- The assessee was not a direct exporter of marine products and thus not entitled to the allowance under section 80HHC.
- The entire claim of investment allowance of Rs. 1,21,49,170 was wrongly allowed as the factory was engaged in the manufacture of items prohibited under the Eleventh Schedule of the IT Act.
- The contribution to the staff savings scheme was not admissible under section 40A(9) or 40A(10).

The Tribunal upheld the CIT's jurisdiction to initiate proceedings under section 263, stating that the CIT had the authority to revise the assessment concerning issues not considered by the CIT (Appeals).

2. Doctrine of Merger:
The assessee contended that the assessment order had merged with the appellate order of the CIT (Appeals), thus the CIT had no jurisdiction to revise the assessment under section 263. The Tribunal referred to several judgments, including those of the Calcutta High Court, and concluded that the doctrine of merger applied only to matters considered and decided by the appellate authority. Therefore, only a partial merger occurred, allowing the CIT to revise issues not adjudicated by the CIT (Appeals).

3. Basis of the CIT's Action under Section 263:
The assessee argued that the CIT's action was based on audit objections and not on the CIT's own opinion. The Tribunal found no evidence to support this claim and held that the CIT's non-advertence to this objection was not conclusive. The Tribunal upheld the CIT's action, stating that the absence of evidence or material indicating the CIT's action was prompted by audit objections meant the objection could not be sustained.

4. Merits of the Claims under Section 80HHC and Section 32A:
The CIT disallowed the claim under section 80HHC related to the value of marine products and the investment allowance under section 32A for the plant and machinery at the Loni Factory. The Tribunal noted that the CIT had set aside the assessment to be reframed after allowing the assessee a reasonable opportunity to be heard. The Tribunal upheld this approach, emphasizing the need for the Assessing Officer to re-examine the claims based on correct facts.

5. Scope of the CIT's Power to Set Aside the Entire Assessment:
The Tribunal found force in the assessee's submission that the CIT should not have set aside the entire assessment but only the specific issues on which he considered proper enquiry should be made. The Tribunal modified the CIT's directions, stating that the assessment with regard to the two specific issues (section 80HHC and section 32A) would be set aside, while the other issues would remain undisturbed.

Conclusion:
The Tribunal upheld the CIT's jurisdiction under section 263, rejected the total merger doctrine, and found no evidence that the CIT's action was based on audit objections. The Tribunal supported the CIT's decision to re-examine the claims under sections 80HHC and 32A but modified the CIT's order to limit the revision to these specific issues only. The appeal was dismissed with these modifications.