1985 (1) TMI 139 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner under section 263.
2. Impact of the IAC's directions under section 144B.
3. Effect of dropping proceedings under section 147(b).
4. Doctrine of merger and the jurisdiction of the Commissioner.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner under section 263:
The primary issue was whether the Commissioner had the jurisdiction to revise the assessment order under section 263 of the Income-tax Act, 1961. The assessee contended that the Commissioner lacked jurisdiction because the assessment was completed after obtaining directions from the IAC under section 144B. The Tribunal noted that the ITO had not sought any instructions from the IAC regarding the admissibility of the bonus deduction. Consequently, the Commissioner's jurisdiction was not shut out merely because the assessment was made after referring the draft assessment order to the IAC under section 144B(4).

2. Impact of the IAC's directions under section 144B:
The Tribunal considered whether the directions given by the IAC under section 144B impacted the Commissioner's jurisdiction under section 263. The Tribunal found that since the ITO had not sought instructions from the IAC regarding the bonus, and the IAC had not issued directions on this matter, the Commissioner's jurisdiction to revise the assessment order under section 263 was not precluded.

3. Effect of dropping proceedings under section 147(b):
The assessee argued that the order dropping proceedings under section 147(b) should be construed as an order of reassessment, thereby precluding the Commissioner from exercising his powers under section 263. The Tribunal disagreed, stating that the termination of proceedings under section 147(b) did not equate to making an order of reassessment. Hence, the bar prescribed by section 263(2)(a) did not apply, and the Commissioner was not precluded from exercising his powers under section 263.

4. Doctrine of merger and the jurisdiction of the Commissioner:
The Tribunal also addressed whether the doctrine of merger applied, which would oust the Commissioner's jurisdiction under section 263. The Tribunal noted that the admissibility of the bonus deduction was not in controversy before the first appellate authority, but it was a matter that could have been considered by the first appellate authority. Citing the ratio of the decision in the case of Dwarkadas & Co. (P.) Ltd., the Tribunal concluded that the jurisdiction of the Commissioner to effect the revision under section 263 was shut out because the issue of bonus deduction could have been considered by the first appellate authority.

Conclusion:
The Tribunal held that the jurisdiction of the Commissioner to exercise his powers under section 263 was shut out because the question of admissibility of the bonus as a deduction was a matter that could have been considered by the first appellate authority. Consequently, the appeal of the assessee was allowed, and the order of the Commissioner under section 263 was set aside. The Tribunal did not address the merits of the disallowance directed by the Commissioner.