COMMISSIONER OF INCOME TAX vs. ELECON ENGINEERING CO. LTD.

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ITR/36/1984HC GujaratGJHC24011711198410 August 1998Author: HONOURABLE MR. JUSTICE C.K.THAKKER,HONOURABLE MR. JUSTICE M.C.PATEL3 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the Tribunal was not right in law in concluding that the Commissioner of Income-tax had no jurisdiction to revise the order under Section 263 of the Income-tax Act. The Court reasoned that an order passed by the Income Tax Officer (ITO) after receiving directions from the Inspecting Assistant Commissioner (IAC) under Section 144B of the Act does not change its nature; it remains an order passed by the ITO. Therefore, the Commissioner retains the power to revise such an order under Section 263. The High Court noted that the Andhra Pradesh High Court, in Commissioner of Income Tax vs. East Coast Marine Products (P) Ltd., had reversed the ITAT's Special Bench decision on this point, holding that the revisional powers were available. The Court also observed that the Explanation added to Section 263 in 1984 was clarificatory. Consequently, the question referred to the High Court was answered in the negative, in favour of the revenue. The reference was disposed of accordingly.

What were the facts?

The Commissioner of Income Tax (CIT) invoked revisional powers under Section 263 of the Income Tax Act, 1961, to set aside an assessment order for Assessment Year 1976-77 passed by the Income Tax Officer (ITO). The ITO had allowed certain deductions. The CIT directed the ITO to re-examine the accounting method adopted by the assessee, Elecon Engineering Co. Ltd. The assessee contended before the Income Tax Appellate Tribunal (ITAT) that the CIT lacked jurisdiction to revise the order because the ITO's assessment was made after receiving directions from the Inspecting Assistant Commissioner (IAC) under Section 144B of the Act. The ITAT, following its Special Bench decision in East Coast Marine Products (P) Ltd. vs. ITO, upheld the assessee's preliminary contention, ruling that the principle of merger applied and the Commissioner's revisional powers were unavailable.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Commissioner of Income-tax had no jurisdiction to revise the order under Section 263 of the Income-tax Act, as the assessment by the ITO was made after receiving the directions of the IAC under Section 144B of the Act? Assessee's contention: The assessee argued that the Commissioner had no jurisdiction to invoke Section 263 powers because the ITO's assessment order was passed after receiving directions from the IAC under Section 144B. This was based on the ITAT's Special Bench decision in East Coast Marine Products (P) Ltd. vs. ITO, which held that the principle of merger applied, rendering the order un-revisable. Revenue's contention: The revenue contended that the ITAT's view was contrary to several High Court decisions. It cited cases like Torson Products Ltd. v. Commissioner of Income-tax, CIT v. Vithal Textiles, and others, which held that an order passed by the ITO after receiving directions under Section 144B remains an order passed by the ITO and is subject to the Commissioner's revisional jurisdiction. The revenue also highlighted that the ITAT's decision in East Coast Marine Products (P) Ltd. was reversed by the Andhra Pradesh High Court, which held that the nature of the order does not change and remains revisable.

Which sections of the Income-tax Act were involved?

Section 263,Section 144B

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 36 of 1984

For Approval and Signature:

Hon'ble MR.JUSTICE C.K.THAKKER and MR.JUSTICE M.C.PATEL ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? yes

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? 2 to 5 No -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus ELECON ENGINEERING CO. LTD. -------------------------------------------------------------- Appearance: MR.P.G.DESAI WITH MR MANISH R BHATT for Petitioner MR RK PATEL AND MR.B.D.KARIA for Respondent.

--------------------------------------------------------------

CORAM : MR.JUSTICE C.K.THAKKER and MR.JUSTICE M.C.PATEL Date of decision: 10/08/98

ORAL JUDGEMENT (Per C.K.Thakkar,J.):

The following qestion is referred by the Income Tax Appellate Tribunal for the opinion of this Court:

"Whether on the facts and in the circumstances of the case the Tribunal was right in law in coming to the conclusion that the Commissioner of Income-tax had no juri iction to revise the order under section 263 of the Income-tax Act as the assessment by the I.T.O. was made after receiving the directions of the I.A.C. under section 144B of the Act?"

The proceedings arose in connection with an order passed by the Commissioner of Income Tax (Appeals) under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). In course of assessment proceedings for the Assessment Year 1976-77, the ITO allowed deduction of certain amounts in computing total income. Certain allowances were claimed which were granted by the ITO. The Commissioner exercised the revisional powers under Section 263 of the Act, set aside the assessment made by the ITO and directed him to re-examine the question relating to the method of TORSON PRODUCTS LTD. v. COMMISSIONER OF INCOME-TAX, 173 ITR, 611, a simiar question arose before the High Court of Andhra Pradesh. Interpreting the provisions of Sections 144B and 263 of the Act, the Court held that inspite of the directions issued by I.A.C. to ITO under Section 144B of the Act, the order passed by the ITO continues to be one passed by him and was subject to revisional juri iction of the Commissioner.

Other High Courts are also of the same view. (See CIT v. Vithal Textiles (1989) 175 ITR, 629; CIT v. Dulichand Bhatia (1989) 175 ITR, 634; CIT v. Usharani Bhatia (1989) 176 ITR 542; CIT v. Satishumar and Co. (190) 181 ITR 57; CIT v. East Coast Marine Products (P) Ltd. (1990) 181 ITR 314; CIT v. Gangaram Mohanlal Mittal & Sons (1990) 181 ITR 392; Premier Cable Co. Ltd. v. CIT (192) 193 ITR 719 and CIT v. Vincentian Orissa Society (1992) 194 ITR 743).

It was further submitted that so far as the Tribunal's decision in East Coast Marine Products (P) "clarificatory" in nature and even without such an explanatory clause, the legal position would be the same.

In view of the settled legal position, in our opinion, the question referred to us must be answered in the negative, i.e. against the assessee and in favour of the revenue. The reference is accordingly disposed of. No order as to costs.

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