TMI Blog1996 (4) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made on 30-3-1990, the ITO had erroneously charged tax @ 55 per cent. He was of the view that the income derived by the assessee from manufacturing or processing activities was less than 51 per cent of the assessee's total income and, therefore, the assessee could not be treated as an industrial company under the relevant Finance Act. In response to the notice, the assessee's representative appeared before the CIT on 16-12-1991 and pointed out that by order under section 154 dated 16-7-1991, the assessee was assessed @ 60 per cent. The CIT, however, observed that after passing the order under section 154 on 16-7-1991 the ITO has again passed another order under section 154 on 17-12-1991 rectifying his mistake in applying 60 per cent rate of tax and has, by the said order, reduced the rate of tax to 55 per cent, thereby restoring the status quo ante. He enclosed a copy of the order along with a notice dated 17-12-1991 issued to the assessee asking the assessee to show cause why proceedings under section 263 should not be taken. In response to the letter dated 17-12-1991, the assessee, vide letter dated 19-12-1991, sought for time. The same was, however, refused and the CIT proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulted in prejudice to the interests of the revenue. Neither of these two conditions has been fulfilled in the present case. We cannot look into the notice dated 25-11-1991 any more, because each notice is founded on different jurisdictional facts and their validity has to be examined with reference to what has been brought out therein. There is therefore no way in which we can uphold the first notice. So far as the second notice is concerned, it is directed against an entirely different or independent proceedings taken by the ITO which resulted in passing an order under section 154 on 17-12-1991. If the CIT wishes to revise this order, he has to independently give reasons as to how he consider the same to be erroneous and prejudicial to the interests of the revenue. The CIT has to have jurisdiction both when the notice under section 263 is issued and when the order is ultimately passed. The second notice does not set out the reasons for issuing the same. We have no means of verifying as to why or how the CIT considers the second rectification order passed by the ITO to be erroneous and prejudicial to the interests of the revenue. It is not possible to read into the second notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue that the reasons for invoking the provisions of section 263 have been furnished in the order passed by the CIT under section 263 and, therefore, the proceedings could not be held to be invalid merely because the notice issued on 17-12-1991 did not do so. The answer to this submission is that the CIT should have assumed valid jurisdiction before issuing notice under section 263 and be must continue to have valid jurisdiction till the proceedings culminate in the passing of an order. At both points of time, the CIT must have valid jurisdiction to revise the assessment. The requirement of section 263 is that the CIT should not only record a finding that the order of the ITO was prejudicial to the interests of the revenue and was erroneous but he should also mention the material on the basis of which he has arrived at such conclusion. Non-recording of reasons by the CIT would vitiate the order passed by him under section 263. It has been so held by the Allahabad High Court in CIT v. Sunder Lal [1974] 96 ITR 310. The conclusion is strengthened by the use of the words "if he considers" in section 263, which postulates a scrutiny by the CIT of all the relevant facts for coming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order passed by the ITO following a decision of the Tribunal in the assessee's own case. After holding that though as a general rule, the principle of res judicata was not applicable to the decisions of the income-tax authorities and an assessment for a particular year was final and conclusive between the parties only in relation to that year and a decision given in an assessment for an earlier year was not binding either on the assessee or the department in the subsequent year it was held that "this rule was subject to limitation that there should be finality and certainty in all litigations including litigations arising out of the Income-tax Act and an earlier decision on the same question should not be reopened if that decision was not arbitrary or perverse and if it had been arrived at after due enquiry and if no fresh facts were placed before the authority giving the later decision and if the earlier decisions were based on all materials and relevant consideration" (see page 243 of the Report). After so laying down the broad proposition, at page 245 of the Report, the High Court held as under :--- "The Income-tax Officer has merely followed the decision of the Tribunal. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial interpretation by courts, but only by an appropriate agency." The application of the lower rate of tax on the assessee-company on the footing that it is an industrial company, being in conformity with the order of the Tribunal for an earlier year, which, in turn, had applied the judgments of the two High Courts, cannot be stated to be erroneous, though some prejudice might have been caused to the revenue by way of loss of revenue. But as has already been stated, it is not enough that some prejudice is caused to the revenue but it is not further necessary that the order sought to be revised by the CIT should also be erroneous. The order sought to be revised in the present case, not being erroneous, is not amenable to the jurisdiction of the CIT under section 263. Therefore, even on this ground, which is an independent ground, the appeal should succeed. 8. Mr. Surana has also sought to invoke the doctrine of merger in support of the appeal. He pointed out that against the assessment order there was an appeal to the CIT (Appeals) and one of the grounds was that the assessee should be given interest under section 214 of the Act on the refund of Rs. 1,42,366. The CIT (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respectful conformity with the interpretation placed on the provisions by the Kerala High Court and Andhra Pradesh High Court in the decisions cited supra and, therefore, in the interest of judicial discipline and consistency, the said order should be followed. We have no reservation whatsoever in accepting the contention. It would be better to reproduce the relevant part of the Tribunal's order for the assessment year 1981-82 wherein this issue has been decided in favour of the assessee, as under :--- "3. It is argued by learned Departmental Representative that since the assessee-company had no income from its business of manufacturing goods it could not be 'industrial company'. For that purpose, he has placed reliance upon the Explanation to the Clause (c) of section 2(7) of the Finance Act, 1981 which is reproduced above. 4. We find no merit in such contention of learned Departmental Representatives. Such provision has already been interpreted by the Kerala High Court and Andhra Pradesh High Court in the case of Cochin Co. v. CIT [1978] 114 ITR 822 and Nava Bharat Enterprises (P.) Ltd. v. CIT [1983] 143 ITR 804. Following the said authorities, we hold that the CIT (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X
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