1989 (5) TMI 122 - AT - Income Tax

Appeal Before AAC Appellate Orders Assessment Order Assessment Year Excise Duty Orders Prejudicial To Interests Previous Year Subject Matter

Summary

Issues Involved:
1. Assumption of jurisdiction by the Commissioner of Income Tax (CIT) under Section 263.
2. Merits of the case regarding the provision for excise duty liability.

Detailed Analysis:

Assumption of Jurisdiction by the Commissioner of Income Tax (CIT) under Section 263:

The primary contention raised by the assessee was that the assessment order dated 23-8-83, which was passed under sections 143 and 144B for the assessment year 1980-81, had merged into the appellate orders of the CIT(A) and the Income-tax Appellate Tribunal (ITAT). The assessee argued that since the assessment order had merged, there was no existing order that could be revised by the CIT under section 263. The assessee relied on the Allahabad High Court's decision in J.K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344 to support this argument.

However, the CIT negated this objection by referring to the Supreme Court's decision in State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144, which stated that the doctrine of merger is not of rigid and universal application. The application of the doctrine depends on the nature of the appellate or revisional order and the scope of the statutory provisions conferring the appellate or revisional jurisdiction. The CIT also relied on various High Court decisions, including those from Gujarat, Bombay, and Madhya Pradesh, to support the exercise of jurisdiction under section 263.

The Tribunal, after hearing both sides, agreed with the CIT's stance, stating that the learned CIT had full authority to exercise his powers under section 263. The Tribunal noted that the question of the correctness of the allowance of excise duty liability was neither raised before the appellate authorities nor considered by them. Therefore, the CIT had the necessary powers to pass orders under section 263 on this question. The Tribunal concluded that there was no full merger of the ITO's order with that of the ITAT, and thus, the CIT was within his rights to revise the order.

Merits of the Case Regarding the Provision for Excise Duty Liability:

On the merits, the assessee contended that the provision for excise duty liability amounting to Rs. 1,59,505 was correctly made and should be allowed as a deduction. The assessee argued that the provision was based on two show-cause notices issued by the Central Excise authorities dated 7-9-79 and 10-8-80, which indicated a short payment of excise duty.

The CIT, however, held that the show-cause notices did not create a liability unless and until appropriate orders were passed by the concerned authorities. The CIT also noted that the assessee did not provide for the entire amount indicated in the show-cause notices, suggesting that the assessee did not consider the show-cause notices as creating a liability.

The Tribunal, after reviewing the facts, held that the provision of Rs. 1,59,505 was correctly made towards additional excise duty liability. The Tribunal noted that the assessee maintained its accounts on a mercantile system, and the liability to pay excise duty arises as and when the manufacture of the goods took place. The Tribunal also referred to the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363, which held that a statutory liability could be claimed as a deduction even if the assessee denied its liability.

The Tribunal further observed that the show-cause notices issued by the excise department under Rule 10(1) of the Central Excise Rules, 1944, could be regarded as creating a demand for which a provision could be made. The Tribunal also referred to a similar case decided by the Delhi Bench of the Tribunal in ITO v. Sylvania Laxman Ltd. [1984] Tax. 74(6)-124, where the provision for excise duty was allowed as a deduction.

The Tribunal concluded that the CIT was wrong in holding that the ITO's assessment order was erroneous and prejudicial to the interests of the revenue. The provision for excise duty was correctly made, and the deduction was rightly allowed by the ITO. Therefore, the Tribunal set aside the impugned order of the CIT.

Conclusion:

The Tribunal upheld the CIT's assumption of jurisdiction under section 263 but ruled in favor of the assessee on the merits of the case regarding the provision for excise duty liability. The appeal was allowed, and the order of the CIT was set aside.