High Court Of Allahabad
CIT vs. Indo Persian Rugs
Section : 263
Asst. Years : 1980-81, 1981-82, 1982-83
R.K. Agrawal & Vikram Nath, JJ.
IT Ref. No. 5 of 1987
1st November, 2006
Counsel Appeared
R.K. Upadhyaya, for the Revenue : None, for the Assessee
ORDER
By the court :
The Tribunal, Allahabad, has referred the following question of law under s. 256(1) of the IT Act, 1961 (âthe Actâ) for opinion of this Court :
“Whether on the facts and circumstances of the case, the Tribunal was correct in law in holding that the ITOâs order had merged in the order of the CIT(A) and therefore, the CIT had no jurisdiction under s. 263 of the IT Act, 1961 to revise those orders ?”
2. The reference relates to the asst. yrs. 1980-81 to 1982-83. Briefly stated the facts giving rise to the present reference are as follows : The assessee is a registered firm and derived income from carpet business. The ITO allowed the claim of the assessee amounting to Rs. 1,02,252 by way of provisions for payment of bonus in respect of weavers who had worked for the assessee during the accounting year relevant to the asst. yr. 1980-81. This amount represented 4 per cent of the total wages payable to them which amounted to Rs. 25,56,305. Similarly, in the asst. yrs. 1981-82 and 1982-83, similar provision was made for payment of bonus which amounted to Rs. 27,224 and Rs. 99,145 respectively being 4 per cent of the wages. Subsequently, on 22nd March, 1984, the CIT issued a notice under s. 263(1) of the Act to the assessee proposing to nullify the aforesaid part of the assessment made by the ITO. In this notice, it was stated that the claim of the assessee was not allowable under s. 36(1)(ii) or under s. 37, so no deductions as mentioned above were admissible. The assessee in his reply dated nil stated that the assessee maintains regular books of account and in the past the said deductions were allowed by the Department and the assessee in the alternative contended that it was entirely business expenditure and hence, the notice issued by the CIT was incorrect. The CIT passed the order under s. 263 of the Act. He directed the ITO to withdraw the wages in various years as mentioned :
3. Feeling aggrieved, the assessee came up in appeal before the Tribunal. The Authorised Representative for the assessee contended before the Tribunal that the CIT was not justified in passing order under s. 263 of the Act and furthermore that the said order was illegal, uncalled for and without any basis. The Authorised Representative for the assessee in support of this contention placed reliance on various decisions and strongly contended that the decision of the CIT was against law and the same was liable to be quashed. On the other hand, the Departmental Representative justified the action of the CIT relying upon the various decisions of this Court and that of Special Bench of the Tribunal in East Coast Marine Products (P) Ltd. vs. ITO (1983) 4 ITD 73 (Hyd)(SB). The Tribunal after considering the submissions of both the sides and the decision relied upon by them, held as under : “7. We have considered the submission of both the parties as well as the facts on record and the case laws relied upon by them. The CIT dealing with the legal aspect of the matter no doubt distinguished the case of J.K. Synthetics Ltd. (supra) and held that the ratio of the decision of J.K. Synthetics Ltd.âs case (supra) is not universally applicable and the question of merger is decided with reference to the facts of each case. This distinction to our mind is farfetched and we do not subscribe to this conclusion that the case of J.K. Synthetics Ltd. (supra) is distinguishable in view of facts as mentioned in the cases of Satish Chandra Nimesh Kumar vs. Addl. Judge (Revisions) Sales-tax (supra) and Karsandas Bhagwandas Patel vs. G.V. Shah, ITO (1975) 98 ITR 255 (Guj). We would deal with the ratio of the case of J.K. Synthetics Ltd. (supra) whereby their Lordships of the Allahabad High Court held that the entire assessment order made by the ITO merges in the appellate order of the AAC/CIT(A) irrespective of the points urged by the parties or decided by the appellate authority. It is a fact that their Lordships of the Allahabad High Court in the case of J.K. Synthetics Ltd. (supra) did consider the facts of Gujarat High Court decision in the case of Karsandas Bhagwandas Patel vs. ITO (supra) and Allahabad High Court decision in the case of Satish Chandra Nirmesh Kumar vs. Addl. Judge (Revisions) Sales-tax (supra) and distinguished these decisions and thus, the ratio of the decision in the case of J.K. Synthetics Ltd. (supra) is still good law. It need not be repeated that the decision of the Honâble Allahabad High Court has a binding effect on us as we are functioning within the territorial jurisdiction of Uttar Pradesh. For the above reasons we come to the conclusion that the order passed by the ITO merged in the order of the CIT(A) and the CIT had no jurisdiction under s. 263 in view of the decision in the case of J.K. Synthetics Ltd. (supra) it cannot be said on this ground alone that the order passed by the ITO was erroneous insofar as it was prejudicial under s. 263 and passing the order under appeal. Hence, we cancel the order of the CIT and restore that of the ITO. However, at the cost of repetition, it may be made clear that the other grounds taken up by the assessee in these appeals shall remain open for adjudication as and when need may arise.”
We have heard Sri R.K. Upadhyaya, learned standing counsel appearing for the Revenue. Nobody has appeared for the respondent assessee. We find that s. 263 of the Act had undergone a sea change in the year 1988. Earlier uncertainty regarding the question as to whether the order of the AO had merged in appeal or not even where in respect of the part of the assessment order, which was not the subject-matter of appeal has been set at rest by the insertion of cl. (c) of the Explanation as inserted by Finance Act, 1989 w.e.f. 1st June, 1988. This clause came up for consideration before the apex Court in the case of CIT vs. Shri Arbuda Mills Ltd. (1998) 147 CTR (SC) 474 : (1998) 231 ITR 50 (SC) wherein the apex Court has held as follows : “We may refer to the amendment made in s.263 of the IT Act by the Finance Act, 1989, with retrospective effect from 1st June, 1988. The relevant part thereof for the present case is as under : âExplanation.âFor the removal of doubts, it is hereby declared that, for the purposes of this subsection,…. (c) Where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal filed on or before or after 1st June, 1988, the powers of the CIT under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.â The consequence of the said amendment made with retrospective effect is that the powers under s. 263 of the CIT shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the CIT under s. 263 shall extend and shall be deemed always to have extended to them because the same had not been considered and decided in the appeal filed by the assessee. This is sufficient to answer the question which has been referred.”
6. In the aforesaid case, the assessment order was passed on 31st March, 1978 and the appeal was decided on 15th Dec., 1979, i.e., much before the amendment in s. 263 which was made w.e.f. 1st June, 1988 and the apex Court has upheld the jurisdiction of the CIT under s. 263 of the Act. Similar is the position in the present case. The assessment order as also the order of first appeal have all been passed much before 1st June, 1988, i.e., prior to the amendment of s. 263 of the Act. In this view of the matter, the jurisdiction of the CIT to take proceedings under s. 263 of the Act was very well within law even in respect of the part of that assessment order which was not the subject-matter of appeal. Therefore, the Tribunal was not justified in holding that the ITOâs order had merged in the order of CIT(A).
7. We, accordingly, answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee. There will be no order as to costs.
[Citation : 299 ITR 300]