1986 (1) TMI 163 - AT - Income Tax

Summary

Issues:
Assessment order set aside under section 263 of the IT Act - Deductions claimed under section 35 - Exceeding jurisdiction by CIT - Consideration of additional material - Direction to draw up a reference under section 35(3) of the Act.

Analysis:
The appeal before the Appellate Tribunal ITAT DELHI-A involved the assessment order of the assessee for the assessment year 1977-78, which was set aside by the CIT (A)-III, New Delhi, under section 263 of the IT Act. The assessee, a private limited concern, had claimed deductions under section 35 of the Act related to expenses incurred for the construction of a research and development center. The deductions were allowed by the ITO initially, but during an inspection, it was found that the center had not been set up as claimed by the assessee. The CIT deemed the assessment order prejudicial to revenue due to lack of proper examination of facts and set it aside, directing the ITO to draw up a reference under section 35(3) of the Act.

The main contention in the appeal was whether the CIT had exceeded his jurisdiction by considering additional material, specifically the inspection report by the ITO and the IAC, which was not before the ITO during the assessment proceedings. The Tribunal agreed with the assessee's argument that the CIT could only examine the record that was before the ITO and could not consider any new material. Citing the case of Ganga Properties vs. ITO, the Tribunal held that the CIT's reliance on the inspection report was not sustainable, leading to the quashing of the impugned order.

Furthermore, the Tribunal addressed the issue of the direction given by the CIT to the ITO to draw up a reference under section 35(3) of the Act. The assessee argued that no question regarding the use of assets for scientific research had arisen before the ITO, who had allowed the deduction based on the material before him. Refraining from expressing an opinion on this point, the Tribunal set aside the CIT's order, thereby allowing the appeal of the assessee.

In conclusion, the Tribunal found that the CIT had overstepped his jurisdiction by considering additional material not before the ITO, leading to the quashing of the assessment order. The direction to draw up a reference under section 35(3) was also deemed unnecessary in light of setting aside the CIT's order.