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TMI Blog1982 (3) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... of business or profession". The assessee manufactures cables. 2. For this assessment year, in the assessment made by the ITO, the total income was computed at the figure of Rs. 1,12,23,424. The ITO adjusted against this income the losses and depreciation carried forward from the earlier years. He also adjusted the outstanding development rebate. There was a further adjustment by way of a deduction under section 80J of the Act. The bone of contention between the department and the assessee in this appeal is regarding the entitlement of the assessee to a part of the development rebate and the relief under section 80J. The dispute arises in this manner. 3. The development rebate that was adjusted by the ITO in the assessment order was a sum of Rs. 35,67,073. This was described in the assessment order as development rebate carried forward from 1967-68 to 1971-72. The records of the assessee with the ITO indicated that the figure of Rs. 35,67,073 included a sum of Rs. 33,16,297 representing the development rebate relating to the assessment year 1967-68 which had not been allowed as a deduction for that assessment year because that assessment had resulted in a loss. In fact, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebate for the assessment year 1967-68. Under section 33(2) of the Act the development rebate of a particular year which is not adjusted against the profits of that year in view of the insufficiency of profits is to be carried forward to the next assessment year and if it is not fully adjusted, to the subsequent assessment years and so on. Such carry forward is permitted only for eight assessment years. Since this part of the development rebate allowed by the ITO related to the assessment year 1967-68, it could have been carried forward only up to the assessment year 1975-76. The Commissioner considered that the ITO had committed an error in allowing the development rebate of Rs. 33,16,297 relating to the assessment year 1967-68 in this assessment. Similarly, he considered that the adjustment of the relief under section 80J, relating to the assessment year 1971-72 in respect of the new winding wire and strip unit, was also not in order in that the relief under section 80J can be carried forward only for the four assessment years succeeding the initial assessment year. This was with reference to the provisions of section 80J(2). The fourth assessment year would be the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In respect of the deduction of the provisions of gratuity amounting to Rs. 2,54,452, it was urged, on behalf of the assessee, before the Commissioner, that although only a provision was made in the accounts for the year ended 30-9-1975, subsequently the amount has been transferred to an approved gratuity fund. It is pointed out that the gratuity fund had been created before 31-12-1975 and the approval had also been obtained within a short time thereof and, therefore, taking into account the spirit of section 40A(7), it must be held that the assessee had an approved gratuity fund in existence during the previous year for this assessment year. This was also not accepted by the Commissioner who pointed out that the provisions of sub-clause (ii) of clause (b) of section 40A(7) applied only to the assessment years 1973-74 to 1975-76 and not to the assessment year 1976-77. The Commissioner also considered that the disallowance under section 40A(5) should be Rs. 47,170 in respect of some of the employees and directed the ITO to make this disallowance. The Commissioner in paragraph 7 of his order set out the directions given by him under section 263(2) to the ITO. The directions were that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 1975-76, and has closed the proceedings as "N.A." on the ground that there was no previous year for that assessment year, namely, 1975-76. It is submitted that under section 33(2)(ii), there is a bar to the carry forward of the unadjusted development rebate of a particular assessment year to a period for more than eight assessment years, immediately succeeding the assessment year relevant to the previous year in which the machinery was installed. It is submitted that in the facts of the assessee's case, since there was no previous year for the assessment year 1975-76 and, therefore, there was no assessment year 1975-76, the eighth assessment year immediately succeeding the initial assessment year, namely, 1967-68, is the assessment year 1976-77 and, therefore, the assessee is entitled to the adjustment of the development rebate for the assessment year 1967-68 in the assessment for 1976-77. It is submitted that the concept of "eight assessment years immediately succeeding" should not be considered out of context because it is not an abstract concept. In the context of the assessee's case, it is the assessment year 1976-77 that has immediately succeeded the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 40A(7)(b)(ii) the assessee would be entitled to the provision being allowed in this assessment year and, therefore, there is no error in the assessment order by the ITO so as to bring into operation section 263. 17. On behalf of the department, the standing counsel made the following submissions. Replying first to the contention of the assessee that the Commissioner had no jurisdiction under section 263 to revise the assessment order of the ITO as it was an order processed under section 144B of the Act, it is pointed out that in the provision of section 144B, as originally introduced by the Taxation Laws (Amendment) Bill, 1973, the power to make an assessment was given to the IAC and the heading itself read as "Power of Inspecting Assistant Commissioner to make orders of assessment in certain cases". The Select Committee had suggested amendments to this provision, as originally introduced, which has been adopted as section 144B in the statute. It is pointed out that instead of the IAC making the assessment, as originally intended, the duty of making the assessment continued to be vested in the ITO, but subject to the direction of the IAC in such a category of cases. It is subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milarly a provision is contained in clause (g) of section 246(2) which provides for an appeal being made to the Commissioner (Appeals) against an order imposing penalty under section 271(1)(c) of the Act, which has been levied with the prior approval of the IAC under the proviso to item (iii) of section 271(1)(c), while under clause (h) of section 246(2) a penalty levied by the IAC under section 272A of the Act is also brought within the purview of section 246. It is submitted, that the fact that appeals against such orders lie to the Commissioner (Appeals) as distinguished from the appeals lying to the AAC where section 144B is not employed, is not a material distinction. Both orders are assessment orders passed by the ITO. It is further submitted that before the introduction of section 246(2) appeals against the orders of the ITO passed after obtaining the direction from the IAC under section 144B also lay only to the AAC because the institution of the Commissioner (Appeals) had not come into being at the time when section 144B was introduced. 18. It is next submitted that the Act contains a definition of the term "assessment year" in section 2(9). A similar definition was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of clause (b) of section 40A(7) is applicable only to the assessment years 1973-74, 1974-75 and 1975-76 and not to the assessment year 1976-77 and, therefore, it becomes material whether a trust has been created within the previous year for the assessment year as the claim of the assessee can only be considered under sub-clause (i) of clause (b) of section 40A(7). 21. We consider that the jurisdiction of the Commissioner under section 263 cannot be denied on the ground that the assessment order passed by the ITO has been subject to the provisions of section 144B. The distinction that has been attempted by the learned counsel for the assessee, based upon the provisions of section 246(1) and (2), does not really lead to the conclusion that the assessment order passed after obtaining the directions of the IAC is not an assessment order passed by the ITO. It still continues to be an order passed by the ITO even though it was subject to the directions given by the IAC. The assessee has brought to our notice the order of the Appellate Tribunal, Madras Bench "C", in IT Appeal No. 993 (Mad.) of 1979 dated 29-11-1979. It should be mentioned that in that case the IAC had given directions u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re than eight assessment years immediately succeeding the relevant assessment year ; while under section 80J(2) the relief unabsorbed or unadjusted cannot be carried forward for more than four assessment years immediately succeeding the relevant assessment year, which is described in this provision as the initial assessment year. The question that arises for consideration in this case, in respect of these two claims, is whether 1975-76 would be the eighth/fourth immediately succeeding assessment year or 1976-77 would be the eighth/fourth immediately succeeding assessment year. If the matter is to be worked out purely on an arithmetical basis, it is only the 1975-76 assessment year that would be the last assessment year in which such unabsorbed development rebate and relief under section 80J can be adjusted against the profits of the assessee. It is the contention of the assessee that this arithmetical rule should not be applied because there was no assessment for the assessment year 1975-76 in the case of the assessee. There is no dispute about the circumstances which led to such a position in the case of the assessee. The ITO, while allowing a change in the previous year, had impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T [1961] 41 ITR 539 that the closing of the proceedings as "N.A." by the ITO would amount to an assessment order. In the instant case, the ITO has issued a notice under section 139(2) to the assessee and has, subsequently, closed the proceedings as "N.A.", on the ground that the assessee has no previous year. Shri S.P. Mehta, the learned counsel for the assessee, has questioned the correctness or validity of this order of the ITO closing the assessment proceedings as "N.A." on the ground that there was no previous year for the assessee. But we feel that this order of the ITO should not be read in isolation but in the context in which it has been passed, namely, the change in the previous year that has been allowed to the assessee and the further fact, that the assessee's known source of income is only under the head "business" for which there was no previous year for this assessment year. It cannot be said that because the proceedings have been so closed there has, in fact, been no assessment on the assessee for the assessment year 1975-76. This order of the ITO is a valid assessment order in the light of the decision of the Supreme Court cited above. We may point out here that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee how the specific restrictions that are placed against the carry forward of the unadjusted portions of the development rebate and relief under section 80J beyond a certain period can be interpreted so liberally as to allow relief beyond the period specified in these provisions. 27. It has also been submitted by the learned counsel for the assessee that the assessee is only asking for what is due to it under the provisions of the statute and nothing more. It has been stated that if the assessee had not asked for changing the previous year and this change had not been granted by the ITO, the assessee would have naturally in the normal course got the benefit of the carry forward of unabsorbed development rebate and the relief under section 80J. This submission has been made to support the plea that the assessee should be allowed such benefit in the assessment for 1976-77 as has, in fact, been done by the ITO in the assessment proceedings. We do not think that this point is really germane to the issues arising in this appeal, but, nevertheless, the factual position does not provide much support for this submission made on behalf of the assessee. In the papers that have been filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be adjusted against the development rebate brought forward and the relief under section 80J. 28. We may reiterate, once again, that the point considered in the foregoing paragraph is not really germane to the issue before us but we are mentioning this only to place these submissions of the assessee in the proper perspective. We, therefore, hold that the Commissioner was justified in directing the withdrawal of the development rebate relating to the assessment year 1967-68 and the relief under section 80J, relating to the assessment year 1970-71, by his order under section 263 which is under appeal before us. 29. The only other question that remains for consideration is the claim for the deduction of the provisions of gratuity of the sum of Rs. 2,54,452. The assessment year under appeal is 1976-77. The provisions of section 40A(7)(b)(ii) would be relevant only for the assessment years 1973-74, 1974-75 and 1975-76. The claim of the assessee, if it had been for the assessment year 1975-76, would have been quite valid even though the trust had not been created before the end of the previous year for that assessment year. But the assessment year being 1976-77, the claim can only be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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