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TMI Blog2008 (2) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 ("the Act"): At the instance of revenue: "Whether the appellate Tribunal is right in law and on facts in setting aside the order made by the Commissioner of Income tax under section 263 of the Act whereby he had directed the Assessing officer to withdraw deduction under section 80-I?" At the instance of assessee: "Whether the Tribunal was justified in law in holding that the learned Commissioner of Income-tax had jurisdiction to pass order under section 263 of the Act and the order of Assessing Officer did not stand merged in the order of the Commissioner of Income Tax (Appeals)? 2. Whether the Tribunal was justified in law in rejecting the stand of the assessee that: (i). the tanks in question were being used for warehouse purposes: and (ii). the value therefore, could not be considered for the purpose of section 80-I(2)(ii) of the Act? 3. Whether the Tribunal was justified in law in applying the statutorily laid down cut off limit of 20% of the old plant and machinery being used in the new industrial undertaking in spite of assessee's stand that the industrial undertaking was not formed by reconstruction or restructuring or splitting up of the old business? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s references by the revenue and the assessee. 6. The learned standing Counsel for Revenue Mr. B.B. Naik and Mr. S.N. Soparkar, learned Senior Advocate appearing for the assessee submitted that the first question raised and referred at the instance of the assessee was a preliminary issue which was required to be decided at the outset, and in case, the Court was of the opinion that the Tribunal had committed an error in upholding the jurisdiction of Commissioner of Income Tax to exercise powers under section 263 of the Act, it was not necessary to deal with any other questions because the controversy raised by the other questions at the instance of the assessee and the question at the instance of the Commissioner of Income Tax would not thereafter survive. 7. On behalf of the assessee it was contended that once the issue of deduction under section 80-I of the Act had been considered by the Assessing Officer and the matter carried in appeal before the Commissioner (Appeals) the assessment order would merge with the order of the appellate authority and in terms of provisions of section 263 Explanation (c) of the Act the Commissioner of Income Tax did not have jurisdiction to und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, issue regarding eligibility under the said provision could not be divorced and treated independent of the quantum. It was further submitted that in the next decision the question was in relation to deduction under section 80J of the Act and the Court had followed the principle laid down in case of CIT Vs. Shashi Theatre Pvt. Ltd. (2001) 248 ITR (Guj). 8. On behalf of the revenue it was submitted by Mr. Naik that the Tribunal had rightly come to the conclusion that there was no merger of the assessment order on the aspect of deduction under section 80-I of the Act because eligibility under the said provision could be decided only upon fulfilling conditions stipulated by sub-section (2) of Section 80-I of the Act, whereas the relief had to be computed in terms of provisions of section 80-I(1) of the Act. Mr. Naik therefore submitted that CIT was justified in exercising powers under section 263 of the Act considering the fact that in the assessment order there was no discussion as to the matter having been considered by the Assessing Officer. In fact, according to the learned Counsel the assessment order did not reflect any discussion or application of mind in relation to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 656 (Guj) the Court was dealing with provisions of section 35B of the Act wherein by virtue of the provisions itself, of section 35B(1)(b), each of the sub-clauses enumerated nine different items and the conditions for allowing each one of them were independent of each other. That in the case of Panna Knitting Industries [2002] 253 ITR 656 (Guj) out of deduction claimed on four items under section 35B while allowing deduction on three items deduction was disallowed in relation to one item. That the matter was carried in appeal qua that one item only and the disallowance was confirmed by Commissioner (Appeals). The exercise of revisional powers under section 263 of the Act in relation to the three items allowed by the Assessing Officer was ultimately upheld by this High Court by specifically referring to Explanation (c) to section 263(1) of the Act. The Court came to the conclusion that the three items were not the subject matter of consideration and decision by Commissioner (Appeals). Similarly other decisions referred to on behalf of the Revenue were distinguished primarily on the ground that as laid down by the Apex Court in the case of Union of India v. Major Bahadur Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have set up new industrial undertaking in addition to the other unit engaged in warehousing activities since 1983. The Plant and Machinery of the manufacturing unit (i.e. of Industrial Undertaking) were newly acquired by this unit. Copy of the plant and machinery account of this unit is attached herewith for your perusal. It is apparent from the details submitting along with this letter and the details on the records that we fulfill all the requirements of section 80-I deduction under that section made kindly be allowed to us." 13. The Assessing Officer framed assessment under section 143(3) of the Act and worked out relief under section 80-I of the Act by disallowing certain items in relation to the warehousing business. This aspect was challenged before Commissioner (Appeals) in the Appeal along with other grounds of appeal and the Commissioner (Appeals) allowed the claim of the assessee after considering the facts and evidence on record. 14. The Commissioner of Income Tax in the show cause notice issued under section 263 of the Act on 21.02.1989 stated as under: "It is therefore clear that the plant machinery previously used transferred to the new business excee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, the Commissioner of Income Tax is required to ascertain whether the order referred to in sub-section (1) of section 263 of the Act had been the subject matter of any appeal, and if yes, the revisional powers shall be available only if such subject matter had not been considered and decided in such Appeal. 18. The facts of the present case reveal that the assessee claimed relief under section 80-I of the Act. The Assessing Officer reworked such claim after making necessary inquiries and partially reduced the claim made by the assessee. The assessee carried the matter in Appeal before Commissioner (Appeals) who allowed the Appeal on this count directing the Assessing Officer to grant relief under section 80-I of the Act as claimed by the assessee without any disallowance. The contention on behalf of the revenue that under provisions of section 80-I of the Act an assessee becomes eligible only if the assessee fulfills all the conditions stipulated by sub-section (2) of section 80-I of the Act and that computation under section 80-I(1) of the Act is independent of eligibility under sub-section (2) of the said section cannot be accepted. Section 80-I(1) of the Act stipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s all the conditions laid down in sub-section (2) of section 80-I of the Act. It is not possible to read the provisions in any other manner whatsoever. Hence, the contention that the eligibility or otherwise u/s.80-I of the Act was never the subject matter of Appeal requires to be rejected. The Tribunal thus committed an error in law in coming to the conclusion that the prohibition imposed by Explanation (c) to section 263 of the Act would not be applicable. 21. In fact, the Tribunal's order on this count does not discuss as to why and how Explanation (c) to section 263 of the Act does not apply in the facts of the present case. The order only records "9. Considering the rival submissions and the case law cited before us we are of the view that the decision relied upon by the assessee is not applicable to the instant case. To say that the direction of the Commissioner of Income Tax (Appeals) to recompute the relief under the head 80-I amounts to consideration of the fact on eligibility is nor correct. So assessee pleas on lack of jurisdiction u/s. 263 are rejected". One would expect that a preliminary issue as regards jurisdiction would have merited better consideration at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odwill in the books of account of the firm by debiting the goodwill account and crediting the old partners' capital accounts in their profit sharing ratio on that date, formation of a private limited company in the name of Rayon Silk Mills Private Limited, and its induction into the firm as partner by the deed of partnership dated October 27, 1973, and the dissolution of the partnership firm on February 23, 1974, leaving the private limited company as a sole proprietor thereof and the valuation of the business at the book value as on that date. After giving the chronological sequence of events, the assessee also contended in his submission before the Income-tax Officer that there was no actual transfer of any asset inasmuch as when a partner is admitted into the firm no transfer takes place. It was also contended that no cash transfer took place from person to person and the transfer and the dissolution of the firm also did not result in accrual of capital gains. In the face of this material on record, it is difficult to explain that the assessment order was made without making any enquiry into the goodwill account of Rs.10,75,000." 24. There is another aspect of the matter. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence of two views stands established. In the aforesaid circumstances, the Commissioner of Income Tax could not have exercised jurisdiction under section 263 of the Act as per settled legal position. 26. The view expressed by this Court in the case of CIT v. Shashi Theatre Pvt. Ltd. [2001] 248 ITR 126, therefore is in consonance with not only the requirement of law but concludes the issue in so far as the present case is concerned. Just as it is not possible to decide grant of investment allowance in relation to one or the other item without considering the eligibility thereof, similarly deduction under section 80-I of the Act cannot be considered without deciding whether a particular portion of profits and gains has been derived from an industrial undertaking which fulfills the requisite conditions stipulated by the section. 27. In the aforesaid set of facts and circumstances of the case and the view that the Court has adopted, it is not necessary to enter into any discussion as regards merits of the controversy which has been brought before this Court by the other questions at the instance of the assessee and the question at the instance of the revenue. The Refer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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