TMI Blog1993 (3) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... inding to follow. The decision of the Hon'ble jurisdictional High Court is in the following terms:-- "It is held that the amendment is retrospective with effect from June 1, 1988, which means that it will cover only those orders which became the subject-matter of appeal after that date." The assessee succeeds and the appeal stands allowed. Per R.N. Singhal, Accountant Member --Regretting my inability to persuade myself to the view taken in the order of my learned brother, I proceed to write a dissenting order. 2. This appeal by the assessee is directed against order under section 263 dated 13th March, 1989 passed by the CIT, Karnataka-2, Bangalore. First two grounds of appeal taken are as follows:-- "1. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax erred in invoking the provisions of section 263 particularly when the order of the Income-tax Officer has merged with the order of the CIT (A) and thereby the learned Commissioner was divested of his jurisdiction under section 263. 2. The learned CIT further erred in holding that the decision relied on by the assessee has no bearing after the amendment to section 263 by the Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 31-7-1987, i.e., before 1-6-1988 and the revisional order under section 263 was passed on 13-3-1989 (even the first show-cause notice was issued on 16-1-1989), i.e., after 1-6-1988. It is also an admitted position that the point considered in order under section 263 was not at all involved or considered in the appellate proceedings before the CIT(A). Thus, in this case, if the crucial date of 1-6-1988 is considered as applicable to the appellate order, the assessee has to succeed, but if that date of 1-6-1988 is to be considered as applicable to revisional proceedings under section 263, the Department has to succeed. 6. Indeed, in the detailed order given in Ritz Ltd.'s case, it was held that the said date of 1-6-1988 is for the proceedings under section 263. But we have also the subsequently delivered brief decision in International Computers Indian Manufacture Ltd.'s case. Therein, the Hon'ble Bombay High Court has first noted the background commencing from the decision In the case of P. Muncherji Co. and then considered the various amendments effected in section 263. Then on page 582, the Hon'ble High Court has recorded inter alia as under: "... Our court has examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te order or the revisional order being of 1-6-1988 or any later date did not make any difference in the conclusion reached in the case of International Computers Indian Manufacture Ltd. It means that even if the Court had recorded in International Computers Indian Manufacture Ltd.'s case, that retrospective amendment with effect from 1-6-1988 would cover only those orders which became the subject-matter of revision after that date, the High Court's decision on the facts of that case would not have been different at all. Yet another aspect of the matter is that the decision in International Computers Indian Manufacture Ltd.'s case is rendered for rejection of Department's application under section 256(2) for seeking statement of the case from the Tribunal to the Hon'ble High Court and strictly speaking, it is not a decision on merits. Rejection of SLP by the Supreme Court or application under section 256(2) by the High Court does not always carry the same weight as of a decision rendered on merit's. 8. For all these reasons, on a combined reading and harmonious construction of both these decisions, one should apply and adopt the specific conclusion reached in the case of Ritz Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational Computers Indian Manufacture Ltd.'s case and did not decide the matter in a different way and, therefore, even applying the later decision in International Computers Indian Manufacture Ltd.'s case the matter should have been decided in favour of the revenue. That is how the difference of opinion arose and referred to me as a Third Member. Before I express my opinion on the controversy, I shall briefly refer to the relevant facts. 2. The assessee, in the relevant assessment year, filed a return disclosing a loss of Rs.12,27,454 which included a claim for investment allowance under section 32A of the Income-tax Act amounting to Rs.2,33,057. The ITO disallowed this claim on the sole ground that the machinery in respect of which this claim was made was not used in the manufacturing activities of the assessee-company. The assessment was completed by making certain other disallowances. Against these disallowances, the assessee filed an appeal before the CIT (Appeals), who found that even though the assessee had not used the machinery in its own business, yet it was leased out and the lessee had used the machinery for the purposes of the business and that user amounted to user ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r observations, he set aside the order passed by the ITO and directed him to disallow the loss of Rs.9,93,481 claimed as value of investment written off. 3. Aggrieved by this order, the assessee filed an appeal before the Tribunal contending that as a consequence of the amendment made by the Finance Act of 1989, even though with retrospective effect from 1-6-1988. the decision of the Bombay High Court in International Computers Indian Manufacture Ltd.'s case protected the assessee's right as there was a full merger of the order passed by the ITO in the CIT(A)'s order, the CIT had no jurisdiction to interfere. In other words, the point urged before the Tribunal was that, according to the decision of the Bombay High Court in International Computers Indian Manufacture Ltd.'s case, the power of the Commissioner to invoke section 263 was not available in respect of orders passed by the CIT(A) prior to 1-6-1988. This interpretation was accepted by the learned Judicial Member and he allowed the appeal. In particular, he referred to a portion of the judgment in International Computers Indian Manufacture Ltd.'s case, which was in the following terms, to support his view:-- "It is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... henever filed" in Explanation (c). The absence of those words are very significant and cannot have the meaning on the intention of the Legislature that the orders passed by the Appellate Commissioner, which had become final by 1-6-1988, would not be available to the revisional jurisdiction of the CIT under section 263. To put it differently, in respect of appellate orders which had become final by 1-6-1988, the doctrine of complete merger would apply and the doctrine of partial merger would apply only to those appellate orders which are pending as on 1-6-1988 or passed subsequently. This is the ratio of both the decisions of the Bombay High Court. The learned Judicial Member had correctly appreciated the import of the decision of the Bombay High Court and applied it. The learned Accountant Member had not properly appreciated the ratio of the Bombay High Court decision and came to an erroneous conclusion and, therefore, that opinion should not be approved. He also contended on the merits that the assessee has a very strong case and the department should not have interfered as that would not result in any advantage to the revenue. 5. On the other hand, the learned Departmental Repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders, and that was the very purpose of the amendment of Explanation (c). It is, therefore, not correct to contend that the Legislature had misfired. 6. I have considered the arguments addressed to me, perused the Bombay High Court decisions, the orders passed by my learned Members and the records. In my opinion, the view expressed by the learned Accountant Member is the correct view and it is in accord with the legislative intention. Section 263 is a section which confers powers upon the CIT to call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after making such inquiry as he may deem necessary, pass such order thereon as the circumstances of the case justify. He may enhance or modify the assessment or even cancel the assessment and direct a fresh assessment. The question arose whether when an order passed by the Assessing Officer became the subject-matter of appeal before the AAC or the CIT (Appeals), as the case may be, would he still have the jurisdiction to call for and examine the record because the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT under section 263 subject to the condition that that power shall be available only on such matters as had not been considered and decided in those appeals. This power conferred upon the CIT by this amendment cannot be read to mean that this is available only in respect of appeals which are pending on 1-6-1988 as was urged on behalf of the assessee. If that were so, then we would not be giving any meaning or effect to the word "before". The use of the word "before" clearly postulates that this power is available to the Commissioner even in respect of appeals filed before 1-6-1988 but the date of 1-6-1988 was mentioned only as a power conferring jurisdiction upon the CIT to invoke the jurisdiction under section 263 with effect from that date, that is to say, the CIT will not be able to initiate proceedings under section 263 before 1-6-1988 in respect of matters which had not been considered and decided in an appeal filed either on or before or after 1-6-1988. This appears to be the plain meaning of this Explanation on first reading. This very point had come up for consideration before the Bombay High Court in the case of Ritz Ltd. and this is by way of a Writ Petition under A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n after 1-6-1988, the merger of the assessment order will be treated as confined to the issues actually considered and decided in appeal in terms of Explanation (c). The retrospectivity spoken in the next sentence refers only to the date from which the CIT is empowered to interfere under section 263 in cases of partial merger and it has no reference whatsoever to orders passed by the CIT (Appeals) and became final before 1-6-1988. If that were so, then the Explanation (c) will not be having a full value in the sense that the CIT will never be having a case where matters are considered and decided in the appeal. Unless an appeal is decided, one cannot say that a particular matter was decided by the CIT or not. Since the power of the CIT was only to interfere in respect of those matters which had not been decided in the appeal. the decision of the appeal has become absolutely essential for the purpose of invocation of the jurisdiction. Therefore, the question of appeals being pending on 1-6-1988 and decided later on will not advance the assessee's case. The date referred to here is the date from which the CIT can exercise his jurisdiction under section 263 and the expression "filed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was found that the orders were passed under section 263 prior to 1-6-1988 and because the amendment had no retrospective effect beyond 1-6-1988, the High Court. agreeing with its earlier view in Ritz Ltd.'s case held against the revenue and in favour of the assessee. Thus, both the decisions of the Bombay High Court lead to the same conclusion that the power of the CIT to revise orders under section 263 in respect of orders of partial merger is available only with effect from 1-6-1988 and not earlier. It is, therefore. incorrect, in my opinion, on the part of the learned Judicial Member to say that the Bombay High Court in International Computers Indian Manufacture Ltd.'s case had decided the case against the assessee. 7. For the above reasons, I agree with the view expressed by the teamed Accountant Member and hold that the CIT had jurisdiction and validly initiated action and passed his order under section 263 on 13-3-1989 and the passing of the order by the CIT (Appeals) on 31-7-1987 did not vitiate or oust the jurisdiction of the CIT to pass his order under section 263. 8. The matter will now go before the regular Bench for disposal of the appeal on merits in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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