1995 (2) TMI 122 - AT - Income Tax

Assessing Officer, Assessment Order, High Court, Orders Prejudicial To Interests, Supreme Court

Issues Involved:
1. Applicability of Section 44AC vs. Sections 28 to 43C for income computation.
2. Retrospective effect of the Supreme Court's suspension order.
3. Validity of the Commissioner's order under Section 263.

Issue-wise Detailed Analysis:

1. Applicability of Section 44AC vs. Sections 28 to 43C for income computation:
The assessee, a firm engaged in the business of purchasing and selling arrack, filed a return of income for the assessment year 1989-90. The Assessing Officer initially computed the income by applying the provisions of Sections 28 to 43C, following the Andhra Pradesh High Court's decision in A. Sanyasi Rao v. Government of Andhra Pradesh, which held that Section 44AC should not be applied. This decision was pending appeal before the Supreme Court, and the Assessing Officer adhered to the High Court's judgment, finalizing the assessment with an income determination of Rs. 5,23,690.

2. Retrospective effect of the Supreme Court's suspension order:
The Commissioner scrutinized the assessment and noted that the Supreme Court had suspended the Andhra Pradesh High Court's decision in A. Sanyasi Rao's case. The Commissioner interpreted this suspension as having retrospective effect, implying that Section 44AC should have been applied. Consequently, the Commissioner deemed the assessment order erroneous and prejudicial to the interests of revenue, setting it aside and directing a fresh assessment under Section 263.

3. Validity of the Commissioner's order under Section 263:
The assessee appealed against the Commissioner's order, contending that the Supreme Court's suspension did not have retrospective effect. The assessee argued that the suspension merely halted the operation of the High Court's decision but did not reverse it. The assessee relied on several judicial decisions, including Russell Properties (P.) Ltd. v. A. Chowdhury and Venkatakrishna Rice Co. v. CIT, to assert that the Assessing Officer's order, based on the prevailing High Court decision, was neither erroneous nor prejudicial to revenue interests.

Tribunal's Findings:
1. Assessment Order Validity:
The Tribunal noted that the assessment order dated 20-3-1992 was passed when the Andhra Pradesh High Court's decision in A. Sanyasi Rao was still in force. The Supreme Court's suspension order came later, on 31-3-1992. Therefore, the Assessing Officer's reliance on the High Court's decision was justified at the time of assessment.

2. Effect of Suspension Order:
The Tribunal emphasized that the suspension of the High Court's decision by the Supreme Court did not equate to its reversal. Citing the Supreme Court's observation in Shree Chamundi Mopeds Ltd., the Tribunal clarified that a stay order does not nullify the original decision but merely suspends its operation.

3. Commissioner's Jurisdiction under Section 263:
The Tribunal reiterated that the Commissioner's revisional jurisdiction under Section 263 requires the assessed order to be erroneous and prejudicial to the interests of revenue based on the records as they stood at the time of the original order. Given that the High Court's decision was valid when the assessment was made, the Tribunal found no error or prejudice in the Assessing Officer's order.

Conclusion:
The Tribunal concluded that the Commissioner was not justified in invoking Section 263 to revise the assessment order. The original assessment, based on the prevailing High Court decision, was neither erroneous nor prejudicial to revenue interests. Consequently, the Tribunal cancelled the Commissioner's order, allowing the assessee's appeal.

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