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TMI Blog1995 (6) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... e the original assessment order on the particular point relating to grant of weighted deduction under section 35B only. He gave a specific direction to the ITO to withdraw the weighted deduction of Rs. 26,681 as already allowed and consider the grant of such deduction as is admissible in respect of the claim then lodged before the Commissioner of Income-tax. 2.2 The Assessing Officer passed a fresh assessment order on 24-8-1984 to give effect to the said order under section 263 passed by the CIT. In the fresh assessment order dated 24-8-1984, the Assessing Officer allowed weighted deduction in respect of expenses incurred in relation to export promotion of Rs. 61,592 to the tune of Rs. 82,123. Thus extra deduction given under section 35B comes to Rs. 20,531. In the aforesaid second fresh assessment, the Assessing Officer once again allowed the amount of deduction under section 80J at the same figure of Rs. 64,465. The CIT thereafter once again issued a show-cause notice under section 263 on 16-10-1986 in which it was, inter alia, stated that the deduction allowed under section 80J has not been computed in accordance with the relevant provisions of law. The other items of the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside with reference to the deduction granted under section 35B, but the fresh assessment order passed on 24-8-1984 must be viewed as such and should not be circumscribed as only for a consideration of the deduction admissible under section 35B. He placed reliance on judgment reported in J.K Cotton Spg. Wvg. Mills Co. Ltd. v. CIT [1963] 47 ITR 906 (All.) and CIT v. Seth Manicklal Fomra [1975] 99 ITR 470 (Mad.). The CIT on the strength of these decisions came to the conclusion that in making the fresh assessment, the ITO is not restricted in any way, except, to the extent where some specific directions had been given by the higher authorities, the ITO is bound to carry out the specific directions, but the scope of fresh assessment is not restricted to those specific directions contained in order under section 263. The fresh assessment completed on 24-8-1984 will therefore have to be taken as a fresh order in all respects and the proceedings to revise this order cannot be related to first assessment order dated 26-3-1981. As regards the merits, the CIT observed that the capital employed in the new industrial undertaking ought to have computed in accordance with he various claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO should compute the amount of capital employed in the new industrial undertaking for determining relief, if any, admissible under section 80J in accordance with the findings and directions given by him in assessment year 1979-80. With regard to claim of weighted deduction under section 35B in relation to printing and stationery expenditure, similar finding was given. 4. The original assessment for assessment year 1981-82 was made on 23-3-1984. The CIT passed order under section 263 on 13-3-1986. The CIT set aside the assessment to be made de novo according to law. The order under section 2 63, inter alia, contained discussions in relation to following items :-- (a) The point relating to computation of capital employed and determination of deduction allowable under section 80J. (b) The alleged incorrect grant of deduction in respect of Rs. 21,270 being the amount of land revenue consisting of legal fund tax and education cess etc. from the year 1971-72. (c) The alleged incorrect grant of deduction in respect of interest expenditure of Rs. 24,828. 5. The original assessment order for assessment year 1982-83 was made on 15-11-1984. The CIT passed the order under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original assessment order. He was however fair enough to state that the point relating to grant of weighted deduction under section 35B may be perhaps treated as having originated from the fresh assessment order made in August 1984. But he submitted that since the claim for grant of weighted deduction under section 35B was re-determined by the ITO in accordance with the directions given in the first order under section 263/264 made for both the aforesaid years, the same cannot again be subjected to revision under section 263. 5.3 The learned counsel placed reliance on the judgments reported in Karsandas Bhagwandas Patel v. G. V. Shah, ITO [1975] 98 ITR 255 (Guj.), Ahmedabad Sarangpur Mills Co.Ltd. v. A.S.Manohar, ITO [1976] 102 ITR 712 (Guj.), Poonjabhai Vanmalidas v. WTO [1978] 114 ITR 38 (Guj.) and Digvijay Cement Co. Ltd v. CIT [1994] 210 ITR 797 (Guj.) with a view to support his contention that the error, if any, relating to grant of deduction under section 80J arose in the original assessment orders and the claim so allowed in the original assessment cannot be treated as covered by the doctrine of merger in the fresh assessment order. The order passed by the learned CIT (Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od prior to incorporation. Only the balance amount of Rs. 21,270 was charged to P L account and was allowed as deduction. The CIT observed that the assessee capitalised the aforesaid amount of land revenue tax only for the period from assessment years 1971-72 to 1973-74, but the basic facts as to when the asset in respect of which such land revenue tax was paid was acquired has also not been ascertained. The learned counsel submitted that the liability for payment of such arrears of tax arose during the year under consideration and therefore, the deduction already granted by the ITO cannot be treated as erroneous. 5.5 The learned counsel thus strongly supported the various grounds of appeal and urged that the orders under section 263 for all the years under consideration should be cancelled. 5.6 The learned departmental representative submitted that the orders under section 263 passed by the CIT for all the years under consideration are within time and the CIT had validly assumed jurisdiction under section 263. As regards orders passed for assessment years 1979-80 1980-81, the learned departmental representative submitted that it is true that the original assessment for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understanding the true meaning, interpretation, and scope of the relevant provisions contained in section 80J. The Assessing Officer has not at all considered the effect of the inclusion of various sums due from erstwhile firms on which no interest was charged and which were included in the asset side of the balance sheet. The amount of capital employed is required to be computed as per the provisions contained in section 80J(1A). The working of capital employed has to be strictly made in accordance with the various sub-clauses of the aforesaid sections which has not been done by the ITO. The ITO has not even applied his mind in relation to computation of capital employed in accordance with these provisions. The order of the Assessing Officer is therefore clearly erroneous and prejudicial to the interest of revenue. 6. As regards claim for weighted deduction under section 35B with regard to expenditure incurred on stationery and printing, he submitted that a higher proportion of expenses incurred for stationery and printing could not be treated as attributable to export promotion as has been adopted by the Assessing Officer and the same in the absence of any specific material an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 263. It will be pertinent to make a useful reference to the various decisions relied upon by the learned counsel for the assessee in order to properly understand the scope of applicability of doctrine of merger. The Hon'ble Gujarat High Court in the case of Karsandas Bhagwandas Patel held that even after an appeal from an order of assessment is decided by the AAC, a mistake in that part of the assessment order which was not the subject-matter of review by the AAC and was left untouched by him, can be rectified by the ITO under section 35 of the Indian I.T. Act, 1922, because the mistake would be his own mistake which he can always correct under section 35(1). 7.2 The Hon'ble Gujarat High Court in the case of Ahmedabad Sarangpur Mills Co. Ltd held that even if there could be two assessment orders, the period of limitation for rectifying the respective orders should be four years from the date of the original assessment order. Merely because an assessment order is rectified, it cannot enlarge the period of limitation. It was, therefore, held that the effort of the ITO was to rectify the error which had crept in the original assessment order for assessment year 1961-62, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viding for the period of two years limitation in section 263, as every error in the original assessment discovered after the fresh assessments are made, would go on enlarging the period of limitation of time to an indefinite period and the assessments would thus not get the status of its finality in spite of a clear provision of two years period of limit provided prior to amendment with effect from 1-10-1984. We are, therefore, of the considered opinion that the assumption of jurisdiction by the learned CIT under section 263 so far as it relates to grant of deduction under section 80J by the ITO in the original assessments are concerned is barred by limitation of time and is without jurisdiction. 7.4 Such a view is clearly fortified by an earlier decision of this Tribunal in the case of Hindustan Construction Co. v. ITO [1989] 30 ITD 171. It win be worthwhile to reproduce para 16 of the said decision which reads as follows : "Before we part with these appeals, we would like to observe that action under section 263 should be taken after a proper perusal of the records in respect of all the items which are sought to be encompassed within the said action. It would not be desirab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 402 dated 1-11-1984 and the judgment of the Hon'ble High Court in International Computers Indian Mfr. Ltd.'s case in support of his contention that the limitation of time prescribed in the unamended provision should be applied. The said Circular clarifies that as a consequence of the amendment of section 263 with effect from 1-10-1984, the limitation for passing an order under section 263 will, in view of the general principles of interpretation of statute stand extended in cases where the period of limitation originally laid down in that section had not expired before 1-10-1984. However, with a view to avoid controversy and litigation in the matter, they advised the CITs that as far as possible orders under section 263 should be made within two years of the date of the order sought to be revised in cases where the order sought to be revised was passed before 1-10-1984. The later part of the Circular is merely an advice given by the Board to the Officers as a measure of abundant caution and the same cannot be interpreted to mean that the Board gave a clarification of the aforesaid amendment in favour of the assessee. 8.2 The Judgment of Hon'ble Bombay High Court also does not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is reproduced hereunder :-- " For the purposes of this section, the capital employed in an industrial undertaking or the business of a hotel shall, except as otherwise expressly provided in this section, be computed in accordance with clauses (II) to (IV) and the capital employed in a ship shall be computed in accordance with clause (V) (II) The aggregate of the amounts representing the value of the assets as on the first day of the computation period of the undertaking or of the business of the hotel to which this section applies shall first be ascertained in the following manner :-- (i) in the case of assets entitled to depreciation, their written down value ; (ii) in the case of assets acquired by purchase and not entitled to depreciation, their actual cost to the assessee ; (iii) in the case of assets acquired otherwise than by purchase and not entitled to depreciation ; the value of the assets when they became assets of the business ; (iv) in the case of assets, being debts due to the person carrying on the business, the nominal amount of those debts ; (v) in the case of assets, being cash in hand or bank, the amount thereof, Explanation 1 : In this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial undertaking exceeds the amount of borrowed money. If such non-industrial assets are less than the borrowed money, the said provision would not be applicable. The revenue's interpretation of these provisions is that while computing the aggregate Amount of values of the assets, as per clause (II), the value of those assets which cannot be regarded as assets relating to the Industrial Undertaking win have to be excluded. The question relating to interpretation of these provisions raises an interesting question of law. However, we find that the Assessing Officer before allowing deduction under section 80J in the original assessment for assessment years 1981-82 and 1982-83 did not make any such scrutiny and examination of the relevant facts in the light of the aforesaid provisions of law. This will render the original assessment orders made for assessment years 1981-82 and 1982-83 to be erroneous as well as prejudicial to the interest of revenue. 8.7 Likewise, the point relating to grant of deduction of interest and land revenue tax allowed in the original assessment for assessment year 1981-82 also required ascertainment of all the relevant facts which was not done by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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