1985 (1) TMI 141 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the CIT under Section 263 to revise the assessment order.
2. Validity of the ITO's order dropping proceedings under Section 147(b).
3. Impact of the appeal to the CIT(A) on the CIT's jurisdiction under Section 263.

Issue-wise Detailed Analysis:

1. Jurisdiction of the CIT under Section 263:
The primary contention was whether the CIT had the jurisdiction to revise the assessment order under Section 263, given that the assessment was made after obtaining the IAC's directions under Section 144B. The assessee argued that the CIT could not revise the order as the IAC's directions were involved. However, it was noted that the aspect of bonus was not specifically directed by the IAC, and thus, the CIT's jurisdiction was not shut out. The Tribunal referenced the Special Bench decision in East Coast Marine Products (P) Ltd. vs. ITO, which concluded that the CIT could not revise portions of the order covered by the IAC's directions. Since the bonus issue was not covered by the IAC's directions, the CIT retained jurisdiction under Section 263 to consider the admissibility of bonus as a deduction.

2. Validity of the ITO's Order Dropping Proceedings under Section 147(b):
The assessee contended that the ITO's order of 6th July 1983, dropping proceedings under Section 147(b), should be construed as an order of assessment, thus precluding the CIT from exercising powers under Section 263. The Tribunal examined the statutory provisions and relevant case law, including CIT vs. Damayanti Mehta and Yash Raj Mehta and Esthuri Aswathiah vs. ITO. It was determined that the ITO's action of dropping proceedings did not equate to making an order of reassessment under Section 147. Thus, the CIT was not precluded from exercising his powers under Section 263, as the order dropping proceedings was not synonymous with an order of reassessment.

3. Impact of the Appeal to the CIT(A) on the CIT's Jurisdiction under Section 263:
The assessee argued that the CIT's jurisdiction under Section 263 was ousted due to the appeal to the CIT(A), referencing the Special Bench decision in Dwarkadas & Co. (P) Ltd. vs. ITO. The Tribunal considered the facts and concluded that the admissibility of bonus was directly considered by the ITO, as evidenced by his inquiries during the assessment process. The Tribunal noted that the first appellate authority could have exercised the powers of enhancement regarding the bonus claim. Thus, according to the Special Bench decision, the CIT's jurisdiction under Section 263 was shut out. The Tribunal also referenced the Madras High Court's decision in CIT vs. City Palayacot Co., which supported the view that the CIT's jurisdiction was precluded when the matter could have been considered by the first appellate authority.

Conclusion:
The Tribunal held that the CIT's jurisdiction to exercise powers under Section 263 was shut out because the question of the 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 succeeded, and the order of the CIT under Section 263 was set aside. The Tribunal did not address the merits of the disallowance directed by the CIT, as the jurisdictional issue was dispositive.

Result:
The appeal was allowed, and the order of the CIT under Section 263 was set aside.