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TMI Blog1989 (8) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... is the first of the three orders that is challenged in appeal. 3. Shri Dilip Dwarkadas, the learned counsel for the assessee, after giving the above facts argued that since the order of the I.T.O. had merged with that of the C.I.T. (A), the C.I.T., City III, Bombay, had no jurisdiction to pass orders u/s. 263 of the Act. Shri Dwarkadas relied on the decision of the Bombay High Court in the case of C.I.T. v. P. Muncherji Co. [1987] 167 ITR 671/32 Taxman 551. Shri Keshav Prasad, the Departmental Representative, argued that the ratio of the decision of the Bombay High Court in the case of P. Muncherji Co. no longer applies after the amendment brought about to sec. 263 of the Act by the Finance Act, 1988 with effect from 1-6-1988 and the further amendment brought about by Finance Act, 1989, which had been given retrospective effect from 1-6-1988. Shri Keshav Prasad brought to our notice the provisions of Explanation to sec. 263 which was inserted by the Taxation Laws (Amendment) Act, 1984 with effect from 1-10-1984 and which, as substituted by the Finance Act, 1988 and amended by the Finance Act, 1989 read as under : " (Explanation : For the removal of doubts, it is hereby dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Bombay High Court in P. Muncherji Co.'s case did not any longer come in the way of the Tribunal upholding the order of the C.I.T. on the basis of the provisions of the law as they stood at the present moment. 4. Shri Dilip Dwarkadas, on the other hand, argued that the amendment brought about by the Finance Acts, 1988 and 1989 did not make any difference to the applicability of the decision of the Bombay High Court in P. Muncherji Co.'s case to the facts of the present case. The amendment, according to Shri Dilip Dwarkadas, govern the powers of the C.I.T. in the matter of proceedings u/s. 263 of the Act after 1-6-1988. This amendment, according to Shri Dilip Dwarkadas, could not be invoked to justify the order passed by the C.I.T. prior to that date. 5. We have carefully considered the submissions made by the learned counsel and the Departmental Representative. We have also carefully gone through the amended provisions of Sec. 263. The provisions of Explanation to Sec. 263(1) reproduced above the amendments introduced by the Finance Act, 1989, become operative from 1-6-1988. The amendments brought about by the Finance Act, 1989 by introduction of words " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... informed that the order of the C.I.T.(A) was passed on 15-3-1989, whereas the C.I.T., City III issued Notice u/s. 263 on 29-3-1988 and passed the order on 30-3-1988. Therefore, when the order was passed by the C.I.T. u/s. 263, there was no order by the C.I.T.(A) and, therefore, there was no question of merger of appellate order with that of the assessment order. In our opinion, therefore, there is no substance in the argument of Shri Dilip Dwarkadas that the ratio of the decision of the Bombay High Court in the case of P. Muncherji Co. would be applicable even for the assessment year 1984-85. This argument is consequently rejected. 7. The second aspect of the issue is whether on merits it could be said that the order was erroneous and, therefore, prejudicial to the interest of the Revenue. Shri Dwarkadas argued that the I.T.O. had made full enquiry into the admissibility of the expenditure on selling commission of Rs. 6,86,976 paid to M/s. Vardhaman Enterprises. The I.T.O. in his order for A.Y. 83-84 had given a clear finding to the effect that the assessee's claim was examined thoroughly and it was found that the payment of commission was made as per the agreement between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the claim for allowance of gratuity paid to four persons who were removed from service for disallowance u/s. 37(3A). It is well settled that absence of enquiry can cause prejudice. The I.T.O. must apply his mind to the facts available before him and cannot blindly make an assessment. Where no enquiry is made by the I.T.O., the assessment must be held to be prejudicial to the interest of revenue and what is prejudicial to the interest of the Revenue must be held to be erroneous. Reference in support of this proposition may be made to the decision of the Karnataka High Court in the case of Thalibai F. Jain v. ITO [1975] 101 ITR 1. In the present case there is no evidence of enquiry either into the claim for deduction for commission payments or for deduction of gratuity payments in the order passed by the I.T.O. for the assessment year 1984-85. In our opinion, therefore, the C.I.T. was fully justified in proceedings u/s. 263 for the assessment year 1984-85. We would, therefore, uphold the order of the C.I.T. for assessment year 1984-85, firstly on the ground that the decision of the Bombay High Court in P. Muncherji Co.'s case as no application for the assessment year 1984-8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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