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TMI Blog2008 (2) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 263 of the Act and the order of Assessing Officer did not stand merged in the order of the Commissioner of Income Tax (Appeals)? 2. Whether the Tribunal was justified in law in rejecting the stand of the assessee that: (i). the tanks in question were being used for warehouse purposes: and (ii). the value therefore, could not be considered for the purpose of section 80-I(2)(ii) of the Act? 3. Whether the Tribunal was justified in law in applying the statutorily laid down cut off limit of 20% of the old plant and machinery being used in the new industrial undertaking in spite of assessee's stand that the industrial undertaking was not formed by reconstruction or restructuring or splitting up of the old business? 4. Whether the Tribunal was justified in taking into account the value of the tanks received by the assessee on retirement from the firms and treating the same as transfer within the meaning of section 80-I of the Act ? 5. Whether the Tribunal was justified in law in observing in the end of the order that in subsequent years the tax holiday may not be continued as future matter would be decided on merit on the basis of the facts and figures?" 2. The assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o exercise powers under section 263 of the Act, it was not necessary to deal with any other questions because the controversy raised by the other questions at the instance of the assessee and the question at the instance of the Commissioner of Income Tax would not thereafter survive. 7. On behalf of the assessee it was contended that once the issue of deduction under section 80-I of the Act had been considered by the Assessing Officer and the matter carried in appeal before the Commissioner (Appeals) the assessment order would merge with the order of the appellate authority and in terms of provisions of section 263 Explanation (c) of the Act the Commissioner of Income Tax did not have jurisdiction to undertake revision of the assessment order relating to the said subject matter. In support of the submissions reliance was placed on the two decisions of this Court in the case of CIT v. Shashi Theatre Pvt. Ltd. [2001] 248 ITR 126 and in the case of CIT v. Mehsana District Co.operative Milk Producers Union Ltd., [2003] 263 ITR 645. It was further submitted that the decision in the case of CIT v. Shashi Theatre Pvt. Ltd. [2001] 248 ITR (Guj) was directly on the point as the matter invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order on the aspect of deduction under section 80-I of the Act because eligibility under the said provision could be decided only upon fulfilling conditions stipulated by sub-section (2) of Section 80-I of the Act, whereas the relief had to be computed in terms of provisions of section 80-I(1) of the Act. Mr. Naik therefore submitted that CIT was justified in exercising powers under section 263 of the Act considering the fact that in the assessment order there was no discussion as to the matter having been considered by the Assessing Officer. In fact, according to the learned Counsel the assessment order did not reflect any discussion or application of mind in relation to the issue regarding eligibility under section 80-I of the Act and the Assessing Officer had merely, while accepting the claim of the assessee, reduced quantum of relief under section 80-I of the Act. That the Commissioner (Appeals) was therefore not required to go into the aspect of eligibility under section 80-I of the Act and in absence of any such requirement there could be no decision by Commissioner (Appeals). 9. It was submitted that under Explanation (c) below sub-section (1) of section 263 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed by Commissioner (Appeals). The exercise of revisional powers under section 263 of the Act in relation to the three items allowed by the Assessing Officer was ultimately upheld by this High Court by specifically referring to Explanation (c) to section 263(1) of the Act. The Court came to the conclusion that the three items were not the subject matter of consideration and decision by Commissioner (Appeals). Similarly other decisions referred to on behalf of the Revenue were distinguished primarily on the ground that as laid down by the Apex Court in the case of Union of India v. Major Bahadur Singh [2006] 1 SCC 368 the decisions have to be read and appreciated and applied in the context of the factual matrix by referring to paragraph Nos. 9 to 12. It was further submitted that in so far as the judgment in the case of Gurjargravures Pvt. Ltd. [1978] 111 ITR 1 (SC) the controversy was entirely different; the dispute was in relation to entertainment of additional ground of appeal before the Appellate Authority, and the observations made in the said judgment were thereafter not approved by a Larger Bench of the Apex Court in the case of Jute Corporation of India Ltd. v. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked out relief under section 80-I of the Act by disallowing certain items in relation to the warehousing business. This aspect was challenged before Commissioner (Appeals) in the Appeal along with other grounds of appeal and the Commissioner (Appeals) allowed the claim of the assessee after considering the facts and evidence on record. 14. The Commissioner of Income Tax in the show cause notice issued under section 263 of the Act on 21.02.1989 stated as under: "It is therefore clear that the plant & machinery previously used transferred to the new business exceeds the 20% ceiling provided in Explanation 2 below section 80I(2)(ii) of the Income-tax Act 1961 and as such the condition laid down in clause (ii) of the sub-section is not satisfied......... In the circumstances there is no doubt of the fact that the existing business is divided and another business was set up from such splitting up of assets. Therefore the conditions laid down in clause (i) of sub-section 2 of section 80I has also not been satisfied in your cases." 15. Explanation tendered by the assessee was not accepted by the Commissioner of Income Tax and an order was made on 20.03.1989. The Tribunal, as noted her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al on this count directing the Assessing Officer to grant relief under section 80-I of the Act as claimed by the assessee without any disallowance. The contention on behalf of the revenue that under provisions of section 80-I of the Act an assessee becomes eligible only if the assessee fulfills all the conditions stipulated by sub-section (2) of section 80-I of the Act and that computation under section 80-I(1) of the Act is independent of eligibility under sub-section (2) of the said section cannot be accepted. Section 80-I(1) of the Act stipulates that an assessee is entitled to deduction from profits and gains derived from an industrial undertaking at the stipulated percentage where gross total income of the assessee includes any profits and gains derived from an industrial undertaking in accordance with and subject to the provisions of this section.(emphasis supplied). Meaning thereby, while computing the deductible amount from the taxable income the assessing authority is required to ensure that the profits and gains are derived from an industrial undertaking; such profits and gains are included in the gross total income of the assessee; and the allowance has to be made in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cords "9. Considering the rival submissions and the case law cited before us we are of the view that the decision relied upon by the assessee is not applicable to the instant case. To say that the direction of the Commissioner of Income Tax (Appeals) to recompute the relief under the head 80-I amounts to consideration of the fact on eligibility is nor correct. So assessee pleas on lack of jurisdiction u/s. 263 are rejected". One would expect that a preliminary issue as regards jurisdiction would have merited better consideration at the hands of the Tribunal. 22. The contention on behalf of the revenue that the assessment order does not reflect any application of mind as to eligibility or otherwise under section 80-I of the Act requires to be noted to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, Secondly, the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer that there was no actual transfer of any asset inasmuch as when a partner is admitted into the firm no transfer takes place. It was also contended that no cash transfer took place from person to person and the transfer and the dissolution of the firm also did not result in accrual of capital gains. In the face of this material on record, it is difficult to explain that the assessment order was made without making any enquiry into the goodwill account of Rs.10,75,000." 24. There is another aspect of the matter. The assessee had challenged jurisdiction of the Commissioner of Income Tax to exercise powers under section 263 of the Act. For an order of the Assessing Officer to be interfered with in exercise of revisional powers the Commissioner of Income Tax has to find in the first instance that the order is erroneous and secondly, the order is prejudicial to the interest of revenue. The conditions are twin conditions as held by the Apex Court and both of them have to be fulfilled before Commissioner of Income Tax can exercise jurisdiction under section 263 of the Act. In the case of- Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) the Apex Court has h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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