1982 (5) TMI 113 - AT - Income Tax

Summary

Issues:
1. Jurisdiction of CIT under section 263 of the IT Act.
2. Taxability of interest accrued on compensation.
3. Competency of CIT to revise orders passed under section 143(3) with the approval of the IAC under section 144B.

Analysis:

Issue 1: Jurisdiction of CIT under section 263 of the IT Act
The appeal pertains to the assessment year 1976-77 and challenges the order passed by the CIT under section 263 of the IT Act. The assessee contended that the CIT's order was illegal and wrong, asserting it to be a nullity. The CIT issued a notice under section 263(1) and set aside the assessment order passed by the ITO, directing a fresh assessment. The assessee argued that the CIT's assumption of jurisdiction was incorrect as the ITO had applied the law correctly at the time of assessment. The Tribunal held that the CIT's order was not erroneous, as the ITO had considered the issue of interest accrual diligently, and thus, the CIT's jurisdiction under section 263 was deemed unlawful.

Issue 2: Taxability of interest accrued on compensation
The primary dispute revolved around the taxability of interest accrued on compensation received by the assessee for land acquisition. The ITO had excluded the interest from the income, considering it non-taxable for the assessment year 1976-77. However, the CIT contended that the interest was taxable on a receipt basis, as the entire amount was received during the relevant accounting year. The assessee argued that interest accrues from year to year and cannot be taxed in one year. The Tribunal upheld the assessee's contention, emphasizing that the ITO's decision to exclude the interest was correct, and the CIT's attempt to tax it on a receipt basis was erroneous.

Issue 3: Competency of CIT to revise orders under section 143(3) with IAC's approval under section 144B
The assessee raised the issue of the CIT's competence to revise orders passed under section 143(3) with the approval of the IAC under section 144B. The assessee relied on a decision by the Gujarat High Court to support the argument that the CIT cannot revise orders merged with the IAC's approval. The Departmental representative argued that the interest accrued on the date of the enhanced compensation order and was taxable on a receipt basis. The Tribunal concluded that the order of the ITO was not merged with the IAC's approval, and thus, the CIT's revision under section 263 was deemed unlawful based on the legal principles established in the Gujarat High Court decision.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the correct application of tax laws by the ITO and rejecting the CIT's attempt to revise the assessment order under section 263 of the IT Act.