1988 (3) TMI 145 - AT - Income Tax

Assessment Order, Assessment Proceedings, Assessment Year, Orders Prejudicial To Interests, Reassessment Proceedings

Summary

Issues Involved:
1. Validity of the Commissioner's revision under Section 263.
2. Whether the proceedings initiated under Section 147 were "dropped" or resulted in a "nil assessment."
3. The merits of the provision for liquidated damages as an accrued liability.
4. The jurisdiction and powers of the Commissioner under Section 263.

Detailed Analysis:

1. Validity of the Commissioner's Revision under Section 263:
The assessee contended that there was no order passed by the Inspecting Assistant Commissioner (IAC) which could be revised under Section 263. The Commissioner had erroneously assumed that the IAC had "dropped" the proceedings initiated under Section 147. The assessee argued that the order under Section 263 should be struck down on this ground. The Tribunal, however, concluded that there was an assessment made under Section 147 determining 'Nil Assessment' for each of the assessment years 1978-79 to 1981-82. Thus, the Commissioner's assumption was incorrect, and the proceedings had not been "dropped."

2. Dropped Proceedings vs. Nil Assessment:
The Tribunal analyzed whether the IAC had dropped the proceedings or made an assessment under Section 147. For the assessment year 1978-79, the IAC used the letters "N.P." which was interpreted as a 'nil assessment'. For the years 1979-80 to 1981-82, the letters "N.P." were changed to "N.A." and demand notices showing 'nil assessment' were issued. The Tribunal concluded that for all these years, the proceedings were not dropped but valid assessments were made under Section 147(a), albeit resulting in 'nil assessments.'

3. Merits of the Provision for Liquidated Damages:
The assessee argued that the provision for liquidated damages was an accrued liability and hence an admissible deduction. The Tribunal had previously held in the assessee's own case for the assessment year 1983-84 that such a provision was valid. The Tribunal found that the assessee had consistently made provisions for liquidated damages and adjusted any waived amounts in subsequent years. Therefore, there was no error prejudicial to the revenue that could be rectified by the Commissioner.

4. Jurisdiction and Powers of the Commissioner under Section 263:
The revenue argued that the Commissioner's powers under Section 263 were very wide and could rectify any mistake prejudicial to the revenue. The Tribunal agreed that the Commissioner had the authority to examine the reasons given by the IAC for completing the assessments as 'nil assessments' and determine if there was an error prejudicial to the revenue. However, the Tribunal found that the Commissioner had not examined the reasons provided by the IAC and had incorrectly assumed that the proceedings were dropped. The Commissioner was directed to re-examine the case and determine if there was an error prejudicial to the revenue after considering the reasons given by the IAC and hearing the assessee.

Conclusion:
The Tribunal set aside the orders of the Commissioner under Section 263 for each of the years under appeal. The Commissioner was directed to proceed on the footing that there was an assessment made under Section 147(a) for each of the years and re-examine the reasons given by the IAC for the 'nil assessments'. The Commissioner was to hear the assessee and determine if there was an error prejudicial to the revenue. The appeals were treated as allowed for statistical purposes.