COMMISSIONER OF INCOME-TAX vs. ARUNODAYA MILLS LTD

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ITR/181/1988HC GujaratGJHC24013257198812 October 2001Bench: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the Tribunal was not right in its conclusions. Following the Supreme Court's decision in CIT vs. Shri Arbuda Mills Ltd. (1998) 231 ITR 50, the Court found that the amendments to section 263(1) of the Act, particularly those made by the Finance Act, 1988, and retrospectively by the Finance Act, 1989, clarified that the Commissioner's revisional powers extend to matters that were not considered and decided in an appeal. Therefore, the assessment order does not merge entirely with the appellate order for issues not appealed. Consequently, the CIT retains jurisdiction under section 263 to revise assessment orders even if they were passed after complying with section 144B, and this jurisdiction extends to issues not forming the subject matter of the appeal. The Court answered both referred questions in the negative, in favour of the revenue and against the assessee.

What were the facts?

This is a reference at the instance of the revenue concerning assessment year 1977-78. The Income Tax Appellate Tribunal (Tribunal) had held that the Commissioner of Income-tax (CIT) had no jurisdiction to pass an order under section 263 of the Income Tax Act, 1961 (the Act) in respect of an assessment order passed after complying with section 144B of the Act. The Tribunal also held that the entire assessment order merged with the appellate order, even if the appeal was only on some issues, precluding revision under section 263 for unappealed issues. The revenue has challenged these findings.

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 CIT had no jurisdiction to pass an order under section 263 of the IT Act, 1961, in respect of an assessment order passed after complying with the provisions of section 144B of the IT Act, 1961? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that the entire assessment order merged with the appellate order, even though the appeal was preferred only in respect of some of the questions in the original assessment order, thereby preventing revision under section 263 for unappealed questions? Assessee's contentions: The Tribunal held that the CIT had no jurisdiction under section 263 and that the assessment order merged with the appellate order, even for unappealed issues. The Tribunal relied on the case of Shri Arbuda Mills Ltd. Revenue's contentions: The revenue, represented by Mr. B.B. Naik, relied on the Supreme Court decision in CIT vs. Shri Arbuda Mills Ltd. (1998) 231 ITR 50, which considered amendments to section 263(1) by the Finance Act, 1988, and Finance Act, 1989. This amendment clarified that the Commissioner's powers under section 263 extend to matters not considered and decided in an appeal, even if the assessment order was subject to appeal.

Which sections of the Income-tax Act were involved?

Section 263,Section 144B,Section 143(3)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 181 of 1988

For Approval and Signature:

Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE D.A.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO

3.

Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO 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? : NO

-------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus ARUNODAYA MILLS LTD -------------------------------------------------------------- Appearance: 1. INCOME TAX REFERENCE No. 181 of 1988 MR BB NAIK with MR MANISH R BHATT for Petitioner No. 1 NOTICE SERVED for Respondent No. 1

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

CORAM : MR.JUSTICE M.S.SHAH and MR.JUSTICE D.A.MEHTA

Date of decision: 12/10/2001

ORAL JUDGEMENT (Per : MR.JUSTICE M.S.SHAH)

In this reference at the instance of the revenue, the following questions have been referred for our opinion in respect of assessment year 1977-78:-

(i) "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that C.I.T. had no jurisdiction to pass order under section 263 of the I.T. Act, 1961 in respect of an assessment order which is passed after complying with the provisions of section 144B of the I.T. Act, 1961 ?"

(ii) "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the entire assessment order merged with the Appellate order even though the appeal was preferred only in respect of some of the questions in the original assessment order could not be the subject of revision under section 263 in respect of questions for which no appeal was filed ?"

2.

The reference arises from the order in Income Tax Appeal No.1617 of 1982 wherein the Tribunal relied on the decision of this Court in the case of Shri Arbuda Mills Ltd. and held that in exercise of the powers under section 263 of the Income Tax Act, 1961 (hereinafter referred to as `the Act'), the Commissioner had no jurisdiction to set aside the assessment even in respect of the items which were not the subject matter of appeal before the CIT (Appeals).

3.

We have heard Mr BB Naik, learned counsel for the revenue. Though served, none appears for the respondent-assessee.

4.

The learned counsel for the revenue has drawn our attention to the decision of the Apex Court in CIT vs. Shri Arbuda Mills Ltd. (1998) 231 ITR 50 wherein the Court considered the amendment to the provisions of section 263 (1) of the Act made by the Finance Act, 1988 w.e.f. June 1, 1988 which was again amended by the Finance Act, 1989 with retrospective effect from June 1, 1988 to the effect that where any order referred to in the sub-section and passed by the Assessing Officer had been the subject matter of any appeal (whether before or after 1st June, 1988), the powers of the Commissioner under the sub-section shall extend and shall be deemed always to have been extended to such matters as had not been considered and decided in such appeal. The Apex Court, therefore, held that the order of assessment

passed by the Income Tax Officer under section 143 (3) read with section 144B of the Act, had not merged with that of the Commissioner (Appeals) passed in respect of the items which were not the subject matter of the appeal, so as to exclude the jurisdiction of the CIT under section 263.

5.

Following the aforesaid decision, we are of the view that the Tribunal was not right in holding that the CIT had no jurisdiction to pass order under section 263 of the Act in respect of an assessment order which was passed after complying with the provisions of section 144B of the Act. We are also of the view that the Tribunal was not right in coming to the conclusion that the entire assessment order merged with the appellate order, even though the appeal was preferred only in respect of some of the questions in the original assessment order. Hence, the tribunal was not right in holding that the original assessment order could not be the subject matter of revision under section 263 in respect of questions for which no appeal was filed.

6.

Accordingly, our answer to both the questions is in the negative i.e. in favour of the revenue and against the assessee.

7.

The Reference accordingly stands disposed of with no order as to costs.

(M.S. Shah,J)

(D.A. Mehta,J)

zgs/-

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