2005 (12) TMI 73 - HC - Income Tax

Notice under section 263 on ground that order of assessment particularly deduction for investment allowance by the Assessing Officer is prejudicial to the interests of the Revenue - whether the petitioner company is industrial undertaking or not or for its pattern of manufacturing of concrete piles is manufacturing any article or thing has been adjudicated and decided by the Tribunal previously in respect of the assessment year 1964-65. This fact-finding of the Tribunal in the case of the same assessee is binding unless otherwise contrary shown. It is settled position of law that the findings and decision of the Tribunal binds the subordinate officials of the Income-tax Office. - I think that there was no warrant to issue notice under section 263 of the Act by the Commissioner as conditions mentioned are not fulfilled in this case by reason of the fact there has been no error committed by the then Income-tax Officer.

Issues Involved:
1. Legality of the notice issued under section 263 of the Income-tax Act, 1961.
2. Validity of the investment allowance granted by the Assessing Officer for the assessment years 1980-81 to 1983-84.
3. Whether the petitioner company qualifies as an industrial company engaged in manufacturing.

Issue-wise Detailed Analysis:

1. Legality of the Notice Issued under Section 263 of the Income-tax Act, 1961:
The petitioner company challenged the notice issued by the Commissioner under section 263 of the Income-tax Act, 1961. The notice aimed to revise the assessment order, particularly concerning the deduction for investment allowance, as it was considered prejudicial to the interests of the Revenue. The court noted that ordinarily, such notices are not interfered with in writ jurisdiction. However, the court decided to examine the matter as the final order had not been passed, and all relevant materials were now available.

2. Validity of the Investment Allowance Granted by the Assessing Officer:
The petitioner argued that the investment allowance granted by the Assessing Officer was neither erroneous nor prejudicial to the interests of the Revenue. The petitioner cited decisions from the Orissa High Court and the Bombay High Court, which were applicable at the time of the assessment. The petitioner also referenced a Supreme Court decision, asserting that if the Income-tax Officer adopts one of the possible bona fide views, it cannot be considered an error. The Revenue, on the other hand, contended that the petitioner company did not qualify as an industrial company and that the investment allowance was a misapplication of law, leading to a substantial loss of revenue.

3. Qualification as an Industrial Company:
The petitioner claimed that it was engaged in the manufacturing process of concrete piles, which involved mixing raw materials to create a new product. This process was recognized as manufacturing by the Income-tax Appellate Tribunal in a previous assessment year. The petitioner argued that this fact-finding was binding on the Revenue. The court examined the definition of "industrial company" and concluded that the petitioner met the criteria, as it was engaged in manufacturing or processing goods. The court found that the Commissioner had misread the relevant provisions and had no basis to conclude that the petitioner was a non-industrial company.

Conclusion:
The court held that the conditions for exercising jurisdiction under section 263 were not fulfilled, as the original assessment order was not erroneous. The notice issued under section 263 was set aside and quashed, along with any decisions taken pursuant to it. The court emphasized that the findings of the Tribunal were binding on the subordinate Income-tax authorities. Consequently, the petitioner's application was allowed, and no costs were ordered.

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