1990 (10) TMI 169 - AT - Income Tax

Summary

Issues:
1. Revisional order of CIT regarding assessment order for the year 1981-82.
2. Capitalization of interest and bank guarantee for granting loans.
3. Perquisites calculation for rent-free accommodation.
4. Invocation of revisional jurisdiction by CIT.
5. Complete merger of ITO's order with CIT(A) order.
6. Retrospective effect of Explanation to section 263.

Analysis:

1. The appeal was against the revisional order of the CIT regarding the assessment order for the year 1981-82. The CIT found the assessment order allowing depreciation, additional depreciation, and investment allowance on machinery to be erroneous and prejudicial to the revenue's interest. The CIT enhanced the income by correcting the allowances excessively granted by the ITO.

2. The CIT also noted errors in the capitalization of interest and bank guarantee for granting loans, leading to excessive allowances. The CIT corrected the perquisites calculation for rent-free accommodation provided to the Managing Director, substituting the correct amount of perquisites. The assessee challenged the revisional order on these grounds.

3. The assessee contended that the CIT was not justified in invoking his revisional jurisdiction, as the ITO's order had merged with the CIT(A) order. The Bombay High Court's decision in CIT v. P. Muncherji & Co. was cited to support the argument that the CIT could not revise the ITO's order post-merger.

4. The learned counsel for the assessee argued that the amendment to section 263, especially the insertion of the Explanation, could not have retrospective effect before the provision's enactment. Citing the Bombay High Court's decision in Ritz Ltd. v. Union of India, it was contended that the CIT's revisional order was not justified.

5. The Tribunal, after considering the harmonious construction of provisions and relevant case laws, held that the CIT was not justified in revising the ITO's order post-merger with the CIT(A) order. The Tribunal relied on various decisions by the Bombay High Court and Supreme Court to support the conclusion of complete merger.

6. The Tribunal discussed the retrospective effect of the Explanation to section 263, emphasizing that the CIT's revisional order, passed before the amendment, could not be based on partial merger of issues considered in appeal before the CIT(A). Citing precedents, the Tribunal canceled the revisional order of the CIT and upheld the grounds taken by the assessee, ultimately allowing the appeal.