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2005 (7) TMI 49 - HC - Income TaxAppeal to Commissioner - Section 263 - 1. Whether Tribunal was justified in holding that the CIT (Appeals) expressly or impliedly applied his mind on the issue of the allowance of relief under section 35B on reassortment charges when the claim for deduction on this account had already been allowed by the Income-tax Officer in the assessment order and consequently did not figure in the appeal before the CIT (Appeals)? 2. Whether, Tribunal was justified in holding that after an appeal was decided by CIT (Appeals) against the assessment order, the assessment order merged in the order of the CIT (Appeals) and thereafter the Commissioner of Income-tax could not exercise his jurisdiction under section 263 of the Income-tax Act, 1961 for revising the assessment on the ground of its being erroneous and prejudicial to the interests of the Revenue? - both the questions referred for our opinion are liable to be answered in the negative i.e., against the assessee and in favour of the Revenue
Issues Involved:
1. Whether the Appellate Tribunal was justified in holding that the Commissioner of Income-tax (Appeals) applied his mind on the issue of the allowance of relief under section 35B on reassortment charges. 2. Whether the Appellate Tribunal was justified in holding that after an appeal was decided by the Commissioner of Income-tax (Appeals), the assessment order merged in the order of the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax could not exercise jurisdiction under section 263 of the Income-tax Act, 1961. Issue-wise Detailed Analysis: Issue 1: Application of Mind by Commissioner of Income-tax (Appeals) on Section 35B Relief The Tribunal held that the Commissioner of Income-tax (Appeals) had impliedly applied his mind to the question of the allowance under section 35B regarding reassortment charges. The factual matrix reveals that the assessee, a registered firm, had an assessment for 1980-81 where the Income-tax Officer allowed a weighted deduction under section 35B on Rs. 5,63,350 instead of the Rs. 8,90,676 claimed by the assessee. The Commissioner of Income-tax (Appeals) upheld this order. However, the Commissioner of Income-tax later found the assessment order erroneous and prejudicial to the interests of the Revenue because the weighted deduction under section 35B was allowed without proper inquiry into the reassortment charges. Consequently, the Commissioner of Income-tax exercised his powers under section 263 to revise the assessment order, directing a fresh assessment. The Tribunal's decision to cancel this order was based on the belief that the Commissioner of Income-tax (Appeals) had already considered this issue, thus precluding the Commissioner of Income-tax from revising the assessment under section 263. Issue 2: Doctrine of Merger and Jurisdiction under Section 263 The Tribunal concluded that the assessment order merged with the order of the Commissioner of Income-tax (Appeals), thereby preventing the Commissioner of Income-tax from exercising jurisdiction under section 263. The legal contention was whether the entire assessment order merged with the appellate order or only the issues explicitly considered and decided in the appeal. The court examined the amendment to section 263 of the Income-tax Act, 1961, made by the Finance Act, 1989, with retrospective effect from June 1, 1988. The amendment clarified that the powers of the Commissioner under section 263 extend to matters not considered and decided in the appeal. The court referenced several judgments, including CIT v. P. Muncherji and Co., which established that once an assessment order is confirmed by an appellate court, it becomes a final order. However, the amendment to section 263 altered this legal position, allowing the Commissioner to revise parts of the assessment order not considered in the appeal. The court also noted that the Supreme Court in CIT v. Shri Arbuda Mills Ltd. upheld the retrospective application of the amendment, extending the Commissioner's powers under section 263 to matters not considered in the appeal. Consequently, the court rejected the assessee's argument that the Tribunal's decision should stand because the Commissioner of Income-tax (Appeals) had considered the issue of weighted deduction under section 35B. Conclusion: The court answered both questions in the negative, against the assessee, and in favor of the Revenue. The Tribunal's application of the doctrine of merger was incorrect as the part of the order concerning the weighted deduction under section 35B was not the subject matter of the appeal before the Commissioner of Income-tax (Appeals). The powers of the Commissioner under section 263 extended to this matter, allowing the revision of the assessment order. The matter was remitted back to the Tribunal for a decision in accordance with the law. No order as to costs was made.
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