COMMISSIONER(IT) vs. MS SHIVALIK HATCHERIES

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ITA/29/2005HC Himachal PradeshHPHC01002919200526 October 2009Bench: HONOURABLE MR. JUSTICE SURJIT SINGH,HONOURABLE MR. JUSTICE KULDIP SINGH5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the original assessment orders, having been examined by the CIT in exercise of his revisional powers under Section 263, and the CIT having ultimately upheld the AO's orders, the initial orders of the AO merged with the orders passed by the CIT. The Court reasoned that once an order passed by a lower forum is subjected to appellate or revisional jurisdiction of a superior forum and a final verdict is given, the lower forum cannot review or rectify that order, even if the superior forum upholds the original order. This is because the original order merges into the order of the appellate/revisional authority. Therefore, the AO could not have rectified the original assessment orders under Section 154. The Court answered all the substantial questions of law against the appellant (Revenue) and consequently dismissed the appeals. No issue was expressly left undecided.

What were the facts?

The assessee, M/s Shivalik Hatcheries Pvt. Ltd., engaged in the hatchery business, claimed deductions under Section 80-I of the Income Tax Act for assessment years 1993-94 and 1994-95. The Assessing Officer (AO) initially allowed these deductions. The Commissioner of Income Tax (CIT) initiated suo motu revision under Section 263, but after considering the assessee's response, upheld the AO's orders. Subsequently, following the Supreme Court's ruling in CIT vs. Venkateshwara Hatcheries, which denied Section 80-I deductions to hatcheries, the AO passed rectification orders under Section 154, disallowing the deductions and raising demands. The assessee appealed to the CIT(Appeals), which dismissed the appeal. The assessee then appealed to the Income Tax Appellate Tribunal (ITAT). During the ITAT proceedings, the assessee sought to raise an additional ground challenging the AO's power to rectify the assessment order under Section 154, citing Section 154(1A). The ITAT allowed this additional ground and quashed the rectification orders.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether the Tribunal was right in accepting an additional ground of appeal raised by the assessee after more than 5 years, when it was not raised before the CIT(Appeals) or the AO, and the period for remedial action under Section 154/147 had expired. 2. Whether the Tribunal was right in holding that the AO could not rectify his order under Section 143(3) because the CIT had considered the matter under Section 263, when in fact the CIT had dropped the proceedings under Section 263. 3. Whether the order passed by the CIT under Section 263 could be termed as a matter considered and decided by the CIT when the proceedings initiated by him had been dropped. Assessee's Contentions: The assessee argued that the AO erred in passing rectification orders under Section 154, as it was expressly prohibited by Section 154(1A) of the Income-tax Act. The Tribunal allowed this ground. Revenue's Contentions: The Revenue (Commissioner of Income Tax) contended that the Tribunal was wrong in accepting the additional ground after a long delay and that the AO was empowered to rectify the order. The Revenue argued that the CIT's dropping of proceedings under Section 263 did not preclude the AO from rectifying the assessment order.

Which sections of the Income-tax Act were involved?

Section 80-I,Section 263,Section 154,Section 143(3),Section 154(1A),Section 147

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

ITA Nos. 29 & 30 of 2005.

Date of decision: October 26, 2009.

1.

ITA No. 29 of 2005.

Commissioner of Income Tax

….. Appellant.

Vs. M/s Shivalik Hatcheries Pvt. Ltd.

…. Respondent.

2.

ITA No. 30 of 2005.

Commissioner of Income Tax

….. Appellant.

Vs. M/s Shivalik Hatcheries Pvt. Ltd.

…. Respondent.

Coram The Hon’ble Mr. Justice Surjit Singh, Judge. The Hon’ble Mr. Justice Kuldip Singh, Judge. Whether approved for reporting?1 For the appellant : Mr. Vinay Kuthiala & Ms. Vandana Kuthiala, Advocates.

For the Respondent : Mr. Lovnesh Kanwar, Advocate.

Surjit Singh, Judge, J. (oral) .

By this common judgement, we are disposing of two appeals, i.e. ITA Nos. 29 and 30 of 2005, as both of them arise out of the same order of Income Tax Appellate Tribunal, i.e. the order dated 23rd February 2005. 2. We may first notice the relevant facts. The respondent is an assessee. It is a company engaged in the business of hatcheries.

Whether the reporters of the local papers may be allowed to see the Judgment?

…2… It submitted returns for the assessment years 1993-94 and 1994-95, claiming deductions, under Section 80-I of the Income Tax Act. The Assessing Officer allowed deductions. The matter was called for suo moto revision by the Commissioner, Income Tax, who issued notice, under Section 263 of Income Tax Act, to the respondent/ assessee. The assessee responded to the notice. The Commissioner, Income Tax then recorded a finding that deduction was allowed by the Assessing Officer in accordance with law. The assessment orders were upheld. 3. Later on, the Hon’ble Supreme Court in CIT vs. Venkateshwara Hatcheries 237 ITR 174 ruled that deduction under Section 80-I of Income Tax Act is not available to hatcheries. In view of this judgement, the Assessing Officer passed an order holding that respondent-assessee was not entitled to any deduction, under Section 80-I of Income Tax Act in respect of assessment years 1993- 94 & 1994-95 and raised the demand accordingly. The respondent- assessee appealed against that order to the Commissioner of Income Tax. His appeal was dismissed by the Commissioner, Income Tax. The respondent then approached the Income Tax Appellate Tribunal. During the pendency of the appeal before the Tribunal, the assessee made an application for raising additional ground of appeal. The ground, which wwas sought to be raised, was as follows:- “On the facts and the circumstances of the case and in law, the learned Assessing Officer has erred in passing order under section 154 to rectify assessment order completed under section 143(3), although same is expressly prohibited by virtue of section 154(1A) of the Income-tax Officer.”

…3… 4. The Tribunal allowed this ground to be raised and ultimately decided the matter in favour of the assessee- respondent holding that once initial order of the Assessing Officer allowing the deduction, under Section 80-I of the Income Tax Act had been upheld by the Commissioner, Income Tax and the notice issued, under Section 263 of the Income Tax Act to the assessee had been dropped by the said Commissioner, Income Tax, the Assessing Officer could not have rectified the original order of assessment. Consequently, the orders of rectification passed by the Assessing Officer were quashed with the finding that the same were without jurisdiction. 5. The Commissioner, Income Tax has now filed two separate appeals, one in respect of rectification of order passed in respect of assessment year 1993-94 and the other in respect of assessment year 1994-95, challenging the order of the Tribunal. The appeal was admitted by this court vide order dated 2.9.2005, on the following substantial questions of law:- 1. Whether on the facts and circumstances of the case the Hon’ble Tribunal was right in accepting the additional ground raised by the assessee after a lapse of more than 5 years, when such ground was not raised before the CIT (Appeals) or the AO, and the period for taking remedial action u/s 154/147 by the CIT/AO had also expired?

2.

Whether on the facts and circumstances of the case the Hon’ble Tribunal was right in law in holding that the A.O. could not rectify his order u/s 143(3) since the CIT had considered the matter u/s

…4… 263, whereas in fact the CIT, after considering the facts of the case, had refused to interfere with the order passed by the A.O. and had dropped the proceedings u/s 263?

3.

Whether on the facts and in the circumstances of the case the order passed by the CIT u/s 263 could be termed as a matter considered and decided by the CIT, when the proceedings initiated by him had been dropped?

6.

We have heard the learned counsel for the parties and gone through the record. 7. Admittedly, the original orders of assessment passed by the Assessing Officer had been examined by the Commissioner, Income tax in exercise of his revisional powers, under Section 263 of the Income Tax Act. The Commissioner, Income Tax initially thought that deduction, under Section 80-I of the Income Tax Act could not have been allowed to the respondent hatcheries. So he issued a notice to the respondent-assessee. The response was filed by the respondent, on considering which the Commissioner, Income Tax held that respondent-assessee was entitled to deduction, under Section 80-I of the Income Tax Act. That means, initial orders of Assessing Officer merged in the orders passed by the Commissioner, Income Tax in exercise of his revisional jurisdiction, under Section 263 of the Income Tax Act. 8. Now when order passed by a lower forum or court is subjected to appellate or revisional jurisdiction of a superior forum or court and a final verdict about such order is given, as in the present

…5… case, the lower forum or court cannot review or rectify that order, even if the appellate/ revisional forum/ court happens to uphold such original order. Reason is that such order merges into the order of appellate/ revisional authority. 9. In view of above stated position, we answer all the aforesaid questions against the appellant and consequently dismiss the appeals.

( Surjit Singh ),

Judge.

October 26, 2009.

( Kuldip Singh ), (Hem)

Judge.

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