COMMISSIONER OF INCOME TAX vs. PRECISE PLASTIC INDUSTRIES

ITR/156/1983HC GujaratGJHC24011627198330 January 1997Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE R.BALIA8 pages
AI SummaryPartly Allowed

What were the facts?

This case involves an Income Tax Reference filed by the Revenue before the High Court of Gujarat at Ahmedabad. The reference arises from an appellate order of the Income Tax Appellate Tribunal (ITAT) dated April 27, 1981, concerning assessment year 1977-78. The ITAT had cancelled an order passed by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961. The CIT's order was challenged on grounds that it was erroneous and prejudicial to the interest of the Revenue. The dispute specifically pertains to advances made by the assessee, Precise Plastic Industries, to a firm named M/s. Shree Krishna Cast Iron & Brass Works and the interest income derived therefrom. The High Court was directed to consider two questions of law arising from the ITAT's order.

What did the High Court hold?

The High Court held that the initiation of proceedings under Section 263 by the Commissioner could not be held bad in its entirety, especially if some grounds for invoking the jurisdiction satisfied the statutory tests, even if other grounds did not. However, the Court agreed with the Tribunal that the Commissioner's order regarding advances to M/s. Shree Krishna Cast Iron & Brass Works and the interest income derived therefrom was not sustainable. The Court analyzed Rule 19A(4) of the Income Tax Rules, 1962, concerning the computation of capital employed for Section 80J deduction. It found that the Commissioner erred because the first condition for excluding investments (income not taken into account for business profits) was not met, as the interest income was indeed considered. Furthermore, the Commissioner failed to apply his mind to the second condition (investments exceeding borrowed moneys). Without these two findings, the Commissioner could not have concluded that the computation of capital employed was erroneous and prejudicial to the Revenue. Therefore, the Tribunal was correct in not confirming the Commissioner's order on this specific issue.

What were the issues?

1. Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in cancelling the order of the Commissioner of Income Tax made under Section 263 of the Income Tax Act, 1961? 2. Whether, the conclusion of the Appellate Tribunal in holding that the order of the Commissioner of Income Tax suffered from a basic infirmity and was liable to be cancelled in respect of advances made by the assessee to the firm M/s. Shree Krishna Cast Iron & Brass Works and the interest income derived therefrom is correct in law and sustainable from the material on record? Assessee's Contention (implied from Tribunal's reasoning): The Commissioner of Income Tax cannot invoke Section 263 merely because a further inquiry is necessary or useful. The CIT must have material on record to conclude that the Income Tax Officer's order is erroneous. The CIT's order in this case was based on doubt and stepped beyond his jurisdiction concerning advances to M/s. Shree Krishna Cast Iron & Brass Works. Revenue's Contention (implied from the questions referred): The CIT's order under Section 263 was valid and the ITAT was wrong in cancelling it. The ITAT's conclusion regarding the infirmity in the CIT's order concerning advances to M/s. Shree Krishna Cast Iron & Brass Works and the interest income derived therefrom was incorrect.

Which sections of the Income-tax Act were involved?

Section 263,Section 80J

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 156 of 1983

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE R.BALIA. ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

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?

-

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 263

All 13,474 judgments and leading authorities on Section 263 →

Recent GST High Court judgments

Search GST case law →