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TMI Blog1986 (3) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,41,43,219. 3. There are three main common grounds involved in these appeals. The first ground is regarding jurisdiction of the learned Commissioner to pass the common impugned revisionary order covering both the assessment years. The second ground is against considering Rs. 68,19,399 representing the net difference in exchange as part of the capital reserve account. The third ground is about the finding given against not deducting Rs. 19,78,166 shown as debit balance in the miscellaneous expenditure account, representing the miscellaneous expenditure which was not yet adjusted. Now let us take up the grounds one by one. 4. The ITO completed the surtax assessment for 1977-78 on 30-8-1982 and for 1978-79 on 10-9-1982. The assessee preferred appeals against the assessments before the Commissioner (Appeals) who passed orders dated 14-3-1983 disposing of the appeals filed before him. As against the said appellate order dated 14-3-1983 the assessee preferred separate appeals before this Tribunal and the Tribunal by its order dated 28-7-1984 disposed of these appeals. It is, no doubt, true that the grounds covered by the Tribunal order are not about the amounts now involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t were considered. In the said decision, the principles laid down by the Supreme court on the said subject till then, were also considered. The Hon'ble supreme court considered the principles laid down in an earlier case decided by them in CIT v. Shapoorjhi Pallonji Mistry [1962] 44 ITR 891, the Bombay High court decision in Narrondas Manordass v. CIT [1957] 31 ITR 909 and the decision of the Supreme court approving the above said decision, in CIT v. McMillan Co. [1958] 33 ITR 182 at page 193. After considering the above decision, the Hon'ble Supreme Court in Rai Bahadur Hardutory Motilal Chamaria's case held that the principles which emerge from the above authorities are as follows. "The principle that emerges as a result of the authorities of this court is that the Appellate Assistant Commissioner has no jurisdiction, under section 31[3] of the Act, to assess a source of income which has not been processed by the Income-tax Officer and which is not disclosed either in the returns filed by the assessee or in the assessment order, and, therefore, the Appellate Assistant Commissioner cannot travel beyond the subject matter of the assessment. In other words, the power of enhancem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 344 court in J. K. Synthetics Ltd. v. Addl. CIT [1976] in support of his stand. In that case, the petitioner-company claimed that it was manufacturing Nylon-6 and it was a petro-chemical industry to which section 33[1][b][B][i] of the 1961 Act was applicable. It was also claimed that it was a priority industry and so entitled for depreciation at 15 per cent under section 80E of the 1961 Act, for 1967-68. Both these claims were allowed by the ITO. As certain deductions claimed by the assessee-company were not allowed, the assessee filed an appeal which was partly allowed by the AAC on 14-12-1972 with the result that the assessment was modified. The Additional Commissioner served notice upon the assessee on 20-12-1973 that he has was intending to revise the order of the ITO for the assessment year 1967-68, inasmuch as the assessment order was prejudicial to the interests of revenue for the ITO allowed development rebate at 35 per cent instead of 20 per cent and depreciation under section 80E was also wrongly allowed. The jurisdiction of the Commissioner was contested before the Allahabad High court inter alia, on the ground, of merger. The petitioner-company relied on the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madhya Pradesh Court decision as it is more favorable to the assessee. He pointed out that there is no direct Andhra Pradesh High Court decision on this point. He also referred to the decision of the Hon'ble supreme court in Addl. CIT v. Gurjargravures [P.] Ltd. [1978] 111 ITR 1 and the Andhra Pradesh High Court decision in the case of CIT v. Gangappa Cabels Ltd. [1979] 116 ITR 778. But we are unable to find any relevance of these two decisions and their applicability to the facts before us. 7. On the other hand, the learned departmental representative argued that the re visionary jurisdiction was correctly exercised by the learned Commissioner. He argued that the subject matter of revision was never considered by the first appellate authority. He invited our attention to the legal position considered in Sampath Iyengar's Law of Income-tax seventh edn. The learned authors stated the law, as to the doctrine of merger as follows : "18. Applicability of doctrine of merger to Commissioner's power under section 263. - There has been a judicial controversy with regard to the applicability of the doctrine of merger of orders. The view taken most of the High court is that the merger i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its non-taxability and not to any incidental connection ...." Section 31[3] is analogous to the provisions of section 250[2] [b] and section 251 of the 1961 Act. It is not the case of the assessee's counsel that the two impugned amounts, now before us, were considered by the ITO during the assessments, within the meaning given to the word 'considered' by the Hon'ble Supreme Court. It is not the case of the assessee's counsel that the question of eligibility or otherwise of the two impugned amounts to be considered as part of capital computation for which statutory deduction is allowable, was considered by the ITO at the time of the relevant assessments. Even on considering the facts on record, we are unable to hold that the ITO already considered the two impugned amounts specifically and gave a decision as to their eligibility to be considered, as part of capital under the Second schedule, or their being eligible for statutory deduction under section 4 of the Act. Hence, the argument of the learned counsel for the assessee can be held to be of no avail. 9. Even otherwise, we are inclined to follow the ratio of the majority decisions among the High Court which is reflected ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment years under consideration. 11. The assessee-company had some sterling balances in foreign banks even prior to 1966. On 6-6-1966, the Indian rupee was devalued with reference to foreign currency, more especially the dollar and the pound. Therefore, the value of sterling balances which the assessee had got in foreign banks increased in terms of its rupee value, owing to devaluation of rupee. In view of the fact that the assessee adopted new exchange value to the sterling balances it had in foreign banks, the Sterling balances though remained constant resulted in increase of Rs. 68,19,399 in rupee value in each of two accounting years relevant to the two assessment year under our consideration due to devaluation. As can be seen from page 27 of the printed Annual Report for 1976 [Balance sheet of the assessee company as on 31-12-1976] this difference in exchange was shown as an accretion to the reserves and surpluses and it was described as net difference in exchange per last balance sheet'. The learned Commissioner in his impugned orders considered the increase as having resulted from the revaluation of an existing book asset and so according to Explanation 1 to rule 2 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is realised. In this view of the matter, we consider the Explanation 1 has no application of the facts and circumstances of this case". In view of the categorical decision of the Andhra Pradesh High Court, we hold that increase in rupee value of settling deposits in foreign bank held by the assessee-company, when entered in its books of account, does not amount to ravelling the existing assets of the company. Hence, we set aside the impugned order of the learned Commissioner on this point and restore the restore the treatment given by the ITO to the amount or Rs. 68,10,399 in his assessment order dated 30-8-1982 for the assessment year 1977-78 and dated 10-9-1982 for the assessment year 1978-79. Hence, we allow the appeals of the assessee on this point. 13. Now let us consider the nature of the other amount of Rs. 19,78,116 involved in each of the two assessment years. The assessee-company have incurred certain share income expenses. The said expenses were either not written off or adjusted for each of the two assessment years. This amount was shown as debit balance in the miscellaneous expenditure account. While preparing the balance sheet as a on 31-12-1976 and 31-12-1977 thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the uncommitted reserves of a company according to the provision to the provisions of Schedule VI of the Companies Act, 1956, are only debit balances in the profit and loss account and he is not obliged to deduct the debit balances standing in the miscellaneous expenditure account. He relied upon Note H to Part I of Schedule VI of the Companies act, in support of his contention. He further argued that even though there was no statutory obligation, on the part of the assessee to show the debit balance in the miscellaneous expenditure account, as a deduction from uncommitted reserves, according to the assessee, it had displayed the said debit balance, in the published balance sheet as a deduction from the reserves and this mere display cannot be taken as appropriation of uncommitted reserves or adjustment of the said debit balance and this should not stand in the way of the assessee to claim that amount of Rs. 19,78,116 for purposes of computing the capital for surtax. The debit balance in the miscellaneous expenditure account should not be dedicated from the uncommitted reserves and, therefore, he argued that the ITO correctly allowed statutory deduction of Rs. 19,78,116 in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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