TMI Blog1997 (10) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... s 80-HH, 80HHA and 80-I were withdrawn on the ground that new industrial undertaking had been formed by reconstruction of the business already in existence. According to the Assessing Officer it was merely a question of splitting of existing unit in backward area. 4. The C.I.T. issued notice under section 263 on 11-3-1997 in respect of Assessment year 1992-93 as according to her, the order of the A.O. was found to be erroneous and prejudicial to the interest of revenue, inasmuch as the deductions under sections 80-HH, 80-HHA, 80-I and 80-IA had been wrongly allowed by the assessee. In response to the said notice, the counsel for the assessee attended the office of the CIT on 20-3-1997 and filed written submissions. After considering the submissions of the learned counsel for the assessee, she was of the view that the Assessing Officer had merely accepted the claim of the assessee without examining the claim of the assessee under the aforesaid two sections. Since the Assessing Officer did not make any enquiry regarding eligibility of the claim of the assessee, she was of the view that the order of the Assessing Officer was erroneous and prejudicial to the interest of revenue. She ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of which the CIT could come to the conclusion that new units set up by the assessee over the years were by way of splitting up or re-construction of the old business. In support of his contention, he relied on the decision of the Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 at page 116. According to him, the settled position should not be unsettled in an arbitrary manner. He fairly conceded that the principles of res judicata are not directly applicable to the income-tax proceedings but it was contended by him that this rule is subject to limitation, i.e., there should be finality and certainty in all litigations and the earlier decision on the same question should not be reopened if that decision is not arbitrary or perverse. The earlier decision can be reopened only where some fresh material is brought on record which may justify to take a view different from the view taken in the earlier years. In support of his contention, he relied on the decision of the Bombay High Court in the case of H.A. Shah Co. v. CIT [1956] 30 ITR 618 and the decision of the Hon'ble Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Kerala High Court is distinguishable on facts of the case, inasmuch as there was a finding in that case to the effect that the entire tea leaves which were being manufactured in the single factory was now manufactured in both the factories. It is on the basis of this finding that it was held that it was a case of splitting of business already in existence. According to him, his case was squarely covered by the decision of the Supreme Court in the case of Textile Machinery Corpn. Ltd. 9. His next submission was with reference to the doctrine of merger. According to him, the claim of the assessee under sections 80HH, 80HHA and 80-IA was the subject-matter of consideration by, the CIT (Appeals) in respect of the year under consideration and therefore, the order of assessment merged with the order of the CIT (Appeals) with reference to this issue. In support of his contention, he relied on the decision of the Calcutta High Court in the case of Oil India Ltd. v. CIT [1982] 138 ITR 836/9 Taxman 262. 10. His next submission was that the deduction under the aforesaid sections could not be denied to the assessee merely on the ground that there were common books and management. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi), Addl. CIT v. Mukur Corpn. [1978] 111 ITR 312 (Guj.), K.A. Ramaswamy Chettiar v. CIT [1996] 220 ITR 657/88 Taxman 526 (Mad.) and the decision of the Tribunal in the case of High Range Breweries Ltd. v. ITO [1982] 1 ITD 854 (Bang.). In this connection, he also drew our attention to the paper book filed by the department. He drew our attention to the notice issued by the Assessing Officer under section 142(1) which contains queries relating to the trading profits. No queries had been raised by him in connection with the claim of the assessee under various sections. He also referred to the reply of the assessee in response to notice under section 263 dated 20-3-1997. In para 2.3 the assessee has stated that for opening the new centre it required premises wherein bhattis were to be installed. He drew our attention to the paper book filed by the department to the effect that there was no addition to the building account during the year under consideration. It shows that there was no material for opening the new centre. No query is made by the Assessing Officer in this regard. Even there is no addition to the plant and machinery in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered by the CIT(A) it cannot be said that the order of assessment merged with the order of the appellate authority. Therefore, according to him, the CIT could invoke the jurisdiction under section 263 of the Act. 17. With reference to the last submission of the assessee's counsel, it was submitted by him that even where there are two views the CIT has jurisdiction to invoke the provisions of section 263. In this connection, he relied on the decision of the Gujarat High Court in the case of CIT v. M.M. Khambhatwala [1992] 198 ITR 144. 18. Lastly, it was contended by him that even in the earlier years, there was no conclusive finding that there were industrial undertakings eligible for deduction under various sections. He referred to the decision of the Supreme Court in the case of Radhasoami Satsang at page 322 and the decision of the Tribunal, Bombay Bench in the case of KEC International Ltd. v. ITO [1994] 51 ITD 178 and the decision of the Pune Bench of the Tribunal in the case of Mayur Trading Co. v. ITO [1991] 39 ITD 49. In connection with the case law relied upon by the assessee's counsel, it was submitted by him that these were distinguishable on the facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Commissioner." 21. Once there is a valid initiation of proceedings under section 263, then the CIT is required to give a reasonable opportunity of being heard to the assessee. This is one of the principles of natural justice which has been embodied in the provisions of section 263 itself. The purpose of giving such opportunity is that the affected person has right to defend himself. Unless the basis to assume the jurisdiction is confronted to the assessee, he cannot defend himself. Therefore, the CIT is required to point out to the assessee, how the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. After considering the objections of the assessee, if the CIT comes to the conclusion that the order of the Assessing Officer is erroneous and prejudicial to the interest of revenue, then he may revise the order himself or may restore the matter to the file of the Assessing Officer for making the assessment afresh in the light of the directions given by the CIT and in accordance with the law. 22. It is equa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the CIT under section 263 of the Act with reference to claim of the assessee under sections 80HH, 80HHA and 80-I in respect of the units set up over the years prior to A.Y 1992-93. We have gone through the impugned notice issued by the CIT in which the following reasons have been given for assuming the jurisdiction: (1) The very footing on which these deductions had been claimed is not free from doubt as the Assessing Officer had failed to examine as to whether these centres were industrial undertaking within the meaning of sections 80HH, 80HHA and 80-I. He also failed to examine the basic requirements; viz., (a) investment of substantial fresh capital in the industrial undertaking; (b) employment of requisite labour therein; (c) manufacture or production of articles in the said undertaking; (d) a separate and distinct identity of the industrial unit set up. (2) The A.O. ought not to have allowed the deduction of income from bank interest and other incomes. (3) The Assessing Officer failed to examine the applicability of the provisions of section 80HH(9A) of the Act. (4) He failed to examine the applicability of the provisions of section 80-I(6). He also me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that the order of the Assessing Officer cannot be held to be erroneous on the ground that the units set up by the assessee in the earlier years were formed either by reconstruction or splitting up of the business already in existence and the activity of the assessee did not amount to manufacture or production of an article or thing. In our opinion, the condition regarding formation of units can be examined in the initial year in which the manufacture or production was commenced. This view of ours is based on the use of words 'formed' in sub-section (2) of the respective sections by the Legislature. This view has also been taken by this Bench in the case of Vintage Cards Creations v. Asstt. CIT [1996] 59 ITD 563. Therefore, the Assessing Officer was not required to examine the issue again in the year under consideration in respect of the units formed in the earlier years. There is another reason to decide the issue in favour of the assessee. The Hon'ble Bombay High Court in the case of Paul Bros. has held that unless the deduction allowed in the earlier years are withdrawn, the same could not be denied to the assessee in the subsequent years. In that case, the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same should not be disturbed in the year under consideration unless there was fresh material before the CIT. It is not a case of the CIT that the activity of making bidis could not be treated as manufacturing activity in view of any subsequent decision rendered by the Court. Therefore, in the absence of any fresh material, the earlier legal finding could not be disturbed in view of the decision of the Bombay High Court in the case of Paul Bros. Accordingly, the order of the Assessing Officer, in our view, was in accordance with law. 30. The learned Senior Departmental representative heavily relied on the proposition that the principles of res judicata are not applicable to the income-tax proceedings, inasmuch as each year is an independent year. Various decisions have been cited by him in support of his contention. There cannot be a dispute to such proposition. But this proposition is subject to exceptions as laid down by the Hon'ble Bombay High Court in the case of H.A. Shah Co. relied upon by the assessee's counsel. One of the exceptions is that there should be finality and certainty in all the litigations including the litigation arising out of Income-tax Act and the earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered by the CIT(A). It was ultimately held by him that income by way of dividend on units of UTI and interest on IDBI deposits could not be included in the gross total income. The question for consideration is whether the doctrine of merger applies to the facts of the present case. The amendment to section 263 now rests the controversy which prevailed in the earlier years. Clause (c) to the Explanation after sections 263(1) now clearly provides that the CIT has power to examine such matters which had not been considered and decided in such appeal. In the present case, the controversy before the Assessing Officer was whether the dividend income and interest on the bank deposits could be included in the gross total income or not. This very matter was considered by the CIT(A). Therefore, in our opinion, the order of the Assessing Officer merged with the order of the CIT(A) as far as this matter is concerned. The case law relied upon by the learned Sr. D.R. are distinguishable on the facts, inasmuch as the subject-matter of appeal as well as the subject-matter of revision were entirely different. The decision of the Calcutta High Court in the case of Oil India Ltd. relied upon by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner are wrong on facts or are not tenable in law, the Tribunal has no option, but to accept the appeal and to set aside the order of the Commissioner. The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well. If the Tribunal is allowed to find out the ground available to the Commissioner to pass an order under section 263(1), then it will amount to a sharing of the exclusive jurisdiction vested in the Commissioner which is not warranted under the Act." In view of the above observations of their Lordships, the order of CIT cannot be justified on the grounds other than the one considered by her for holding the order of the Assessing Officer to be erroneous in law. The assessee had replied to each objection of CIT. The CIT has ultimately restricted to few grounds because she must have been satisfied with the reply of assessee otherwise she would not have said in para 4 that submissions of assessee boiled down to five issues with which we have already dealt with. 33. In view of what we have discussed above, we are unable to uphold the order fully. We uphold the order under section 263 only wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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