TMI Blog1982 (9) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly allowed which is worked out to a figure of Rs. 54,29,508; the details of which are given in Annexure 'A' of the order" Besides, he also allowed depreciation as per Annexures 'A', 'B', 'C', 'D', 'E' 'F' amounting to Rs. 1,86,52,271. He had also allowed some advertisement expenses, although there is no discussion about them in his order. 3. Subsequently, the CIT initiated proceedings u/s. 263(1) of the Act. He, at first, issued a notice to the assessee on 14th June, 1980. The relevant paragraphs of this notice read as under; "Having examined the assessment record of M/s. Jaiprakash Associates, 72, Hazrat Ganj, Lucknow, it would prima facie appear that under section 143(3) of Income tax Act, 1961, the order dated 16th August, 1979 passed by the Income Tax Officer is erroneous and prejudicial to the interest of revenue inasmuch as; (i) Advertisement expenses to the extent of Rs. 1,49,879 had wrongly been allowed in full. It should have been disallowed to the extent of Rs. 15,000. (ii) Depreciation of items has been allowed at higher rates than those prescribed. (iii) Before taking any action u/s. 263(1) of the IT Act, 1961, this is to give an opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00. 5. We will now deal with the above submissions of the counsel in somewhat detail. About the initiation of the proceedings u/s. 263 of the Act, his arguments were that the initiation of the proceedings had been done not at the instance of the CIT, but at the instance of the audit party. In this connection, he pointed out that the observation of the CIT, "The matter was accordingly referred to me u/s. 263" and "A notice u/s. 263(1) dt. 4th August, 1981 was accordingly issued", clearly went to show that he was acting on the advice of the audit and not on his own. According to him, what s. 263 of the Act required was that the Commissioner should himself call for and examine the record and if he considered that any order passed therein by the ITO was erroneous in so far as it was prejudicial to the interests of the revenue, he could pass such order thereon as the circumstances of the case justified. According to the ld. counsel for the assessee, the CIT himself had not called for and examined the record. What he had done was only to act on the advice of the audit. The second submission of the ld. counsel for the assessee was that the report of the audit was not a part of the reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e quote below paragraphs 17 and 18 of that order with which we entirely agree; "17. We have given our careful consideration to the rival submissions placed before us. We are of the opinion that the order of the CIT cannot be allowed to stand. We agree with the submission of the ld. counsel for the assessee that the initiation of action u/s. 263 of the act has to be at the instance of the CIT. It is he who should call for and examine the record of any proceedings under the Act. By this, we do not mean to say that the thinking must always originate from the Commissioner. The ITO or any other authority can certainly apprise him of the omission or commission in an assessment order. But then, the CIT must call for and examine the records and then consider that any order passed by the ITO is erroneous in so far as it as prejudicial to the interests of the revenue. It is only after he carries on this exercise that he can assume jurisdiction u/s. 263(1) of the Act. Such exercise does not seem to have been done in the present case. It is clear from the opening paragraphs of the Commissioner's order, which we have quoted in extenso in our this order. It is clear from the order that the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department did not accept the order of a High Court or merely because it was not a correct decision in the opinion of the audit or even in the opinion of the Commissioner. Once, we accept that the order of the ITO had been passed in accordance with law and was not erroneous, the further conclusion follows that it could not be treated as prejudicial to the interests of the revenue. 18. About the opportunity also, we are clearly of the opinion that the assessee had not been given the basis why the CIT considered that the deduction u/s. 32A had been wrongly allowed. In any case, he did not allow even such an opportunity with regard to the withdrawal of depreciation. We do not agree with the submission of the ld. departmental representative that this was a mere lacuna or an irregularity which could be rectified by our setting aside the order of the CIT and directing him to pass a fresh order after allowing an opportunity of being heard to the assessee. There are two limbs of s. 263(1) of the Act. The first is that the Commissioner may call for and examine the record of any proceeding and apply his mind and consider that any order passed therein by the ITO is erroneous in so far as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the interests of the revenue was that the assessee was not an industrial undertaking. According to him, it was this very point, which had been decided by the CIT(A) in connection with the claim u/s. 80J of the Act. The counsel, therefore, submitted that the very issue which was the subject matter of consideration by the CIT u/s. 263(1) of the Act had also been subject matter of appeal before the CIT(A) and, therefore, the order of the ITO had fully merged in the order of the latter, disentitling the Commissioner to initiate proceedings u/s. 263(1) of the Act his second submission was that even if it could be said that the two issues before the CIT (A) u/s. 263 (1) of the Act and before the CIT(A) in appeal were entirely different, still the order of the ITO had merged in the order of the Allahabad High Court in the case of J.K. Synthetics Ltd. vs. Addl. CIT (1976) 105 ITR 344 (All). 10. The ld. departmental representative, on the other hand, submitted that the issues under consideration by the CIT u/s. 263(1) of the Act and by the CIT(A) in appeal were entirely different as they related to the claim of Investment Allowance and relief u/s. 80J, respectively. His further submiss ..... 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