1988 (8) TMI 141 - AT - Income Tax

Summary

Issues Involved:

1. Jurisdiction of the Commissioner of Income-tax under section 263.
2. Applicability of Rule 6AA for assessment year 1981-82.
3. Whether the assessment order was erroneous and prejudicial to the interests of revenue.
4. Adequacy of the enquiry conducted by the Assessing Officer.
5. Whether the Commissioner of Income-tax provided sufficient reasoning for his decision.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income-tax under section 263:

The primary contention of the assessee was that the Commissioner of Income-tax (CIT) had no jurisdiction to infer that the assessment order was erroneous and prejudicial to the interests of the revenue. The assessee argued that the Assessing Officer (AO) had examined various aspects of the matter, including the Board's Circular dated 1-8-1981, and allowed the claim after proper enquiry. The CIT, however, set aside the assessment order, directing the AO to frame it afresh in accordance with the law and relevant rules, as he believed the AO had not brought all relevant materials on record nor made proper enquiries. The Tribunal upheld the CIT's jurisdiction, stating that the CIT had given sufficient reasons for his conclusion that the assessment order was erroneous and prejudicial to the interests of revenue.

2. Applicability of Rule 6AA for assessment year 1981-82:

The assessee argued that Rule 6AA, which came into effect from 1-8-1981, should be applied to all pending assessments, including the assessment year 1981-82. The assessee's counsel cited a decision from the Appellate Tribunal, Madras Bench, which supported the view that amendments effective from a particular date should apply to all assessments pending as of that date. However, the Tribunal in this case concluded that Rule 6AA, effective from 1-8-1981, could not be applied retrospectively to the assessment year 1981-82, as the assessee's accounting year ended on 30-6-1980. The Tribunal referred to decisions from the Hon'ble Supreme Court, which held that amendments coming into force after the first day of April of a financial year would not apply to the assessment for that year.

3. Whether the assessment order was erroneous and prejudicial to the interests of revenue:

The CIT found that the AO had allowed deductions for warehousing maintenance expenses outside India based on a Notification effective from 1-8-1981, which was not applicable to the assessment year 1981-82. The Tribunal agreed with the CIT's finding, stating that the assessment order was indeed erroneous and prejudicial to the interests of revenue. The Tribunal emphasized that the rebate under section 35B should be allowed based on the expenditure incurred during the previous year, and not on the date of assessment.

4. Adequacy of the enquiry conducted by the Assessing Officer:

The CIT criticized the AO for not bringing all relevant materials on record and for not making proper enquiries regarding the claim under section 35B. The Tribunal supported the CIT's view, noting that the AO had failed to adequately examine the facts and apply the relevant provisions correctly. The Tribunal highlighted that the AO's decision to allow the deduction based on the Notification dated 1-8-1981 was incorrect, as the rule was not applicable to the assessment year in question.

5. Whether the Commissioner of Income-tax provided sufficient reasoning for his decision:

The assessee argued that the CIT had not provided sufficient reasoning for setting aside the assessment order. However, the Tribunal found that the CIT had given a clear opinion that the assessment order was erroneous and prejudicial to the interests of revenue. The Tribunal stated that the CIT was not required to make detailed enquiries before revising the order, as long as he provided a valid reason for his conclusion. The Tribunal referred to the decision of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT, which supported this view.

Conclusion:

The Tribunal concluded that the CIT's order under section 263 was justified and valid. The Tribunal emphasized that the rebate under section 35B should be based on the expenditure incurred during the previous year and not on the date of assessment. The Tribunal rejected the assessee's appeal, upholding the CIT's decision to set aside the assessment order and direct the AO to frame it afresh in accordance with the law and relevant rules.