Income Tax Appellate Tribunal - Cochin
T.R. Raghavan, Elite Fabrics vs Deputy Commissioner Of Income-Tax on 22 September, 1993
Equivalent citations: [1994]49ITD135(COCH)
ORDER
G. Santhanam, Accountant Member
1. These appeals are by the assessee against the order of the Commissioner of Income-tax, Cochin, under Section 263 of the Income-tax Act, 1961, for the assessment years 1983-84 and 1984-85.
2. The income-tax assessment in this case was originally completed for the assessment year 1983-84 on 31-1-1986 under Section 143(3) of the Income-tax Act, wherein the Assessing Officer had allowed deduction of interest of Rs. 30,934 being the interest paid to Catholic Syrian Bank Ltd. Similarly, for the assessment year 1984-85, the original assessment was completed under Section 143(3) of the Act on 23-7-1986 allowing a deduction of Rs. 26,694 on account of interest paid to Catholic Syrian Bank Ltd. Subsequently, the assessments were reopened under Section 147 to rope in certain escaped income pursuant to the filing of the revised returns by the assessee under the Amnesty Scheme. In the revised assessments also the deduction in respect of the interest paid to Catholic Syrian Bank Ltd., was found to have been allowed. The learned Commissioner of Income-tax on a perusal of the wealth-tax records of the assessee came to the conclusion that the deduction allowed in respect of the interest payments was not warranted as there was no nexus between the borrowings and the investments found in the wealth-tax returns. Further, he was of the view that the Assessing Officer had not applied his mind whether the impugned amounts were to be allowed under Section 36(1)(iii)or under Section 37(1) or under Section 57 or under Section 67(3) of the Income-tax Act, 1961. Besides the learned Commissioner of Income-tax was also of the view that the Assessing Officer has not examined whether the whole amount should be allowed or only a portion of it should be allowed. In this view of the matter, he revised the latest orders of the Assessing Officer with a direction to him to afford a reasonable opportunity of being heard to the assessee and then determine as to what portion of the interest claimed should be allowed under Section 36(1)(iii) or under Section 37(1) or under Section 57 or under Section 67(3) of the Act. The assessee is on appeal before us.
3. At the outset, the learned Chartered Accountant made it clear that he was not on the merits of the case regarding the deductibility of the interest paid to Catholic Syrian Bank Ltd. He would confine himself only to the issues of jurisdiction and limitation. He submitted that under the provisions of Section 263 even if the mandatory provisions with effect from 1-10-1984 were to apply to this case, the Commissioner of Income-tax can clutch at the jurisdiction only on the basis of the records available to him in respect of any proceedings under the Income-tax Act, 1961; but the learned Commissioner of Income-tax has proceeded to invoke the jurisdiction on the basis of the wealth-tax records which are not records under the Income-tax Act.
4. Smt. Susie B. Varghese, the learned departmental representative submitted that income-tax and wealth-tax are supplementary and complementary to each other and, therefore, there was nothing wrong for the Commissioner of Income-tax to have looked into the wealth-tax records in framing an opinion about the erroneous nature of the order of the Assessing Officer.
5. We do not accept the contention of the revenue because the Explanation to Section 263(1) as inserted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1988 is to the effect that "record" includes all records relating to any proceeding under this Act [Emphasis supplied] available at the time of examination by the Commissioner of Income-tax. Therefore, there is substance in the contention of the learned Chartered Accountant that the records on the basis of which satisfaction is reached by the learned Commissioner that the order of the Assessing Officer is erroneous and prejudicial to the interests of revenue should be the records pertaining to income-tax proceedings. Wealth-tax is a different tax and, therefore, the records in the wealth-tax proceedings cannot be classified as the records under the Income-tax proceedings. Further, the opening words of Section 263 also confine Commissioner only to the "record" of any proceeding under "this Act", viz., the Income-tax Act. Hence, we hold that the learned Commissioner of Income-tax lacked jurisdiction to invoke Section 263 on the basis of the wealth-tax records. The orders under Section 263 fail on this ground.
6. The other contention of the assessee is about the limitation as respects this matter. In respect of these two assessment years, the original orders of assessment were passed on 31 -1 -1986 and 23-7-1986 respectively for the assessment years 1983-84 and 1984-85. Ordinarily the time limit for invoking the provisions of Section 263 would peter out by the end of 31-3-1988 for the assessment year 1983-84 and 31-3-1989 for the assessment year 1984-85. In the meanwhile, reassessment had taken place in respect of both the assessment years. Deduction of interest allowed in the original assessments for both the years was not a subject-matter of reassessment. The theory that once an assessment is reopened, the whole issue is at large and the original assessment gets wiped out is no longer a good law in view of the decision of the Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297. Therefore, the argument goes that as the reassessment is only in relation to incomes that escaped assessment in the original assessment, the matters that were settled in the original assessment had reached their finality in the original assessment itself and cannot be said to have been reopened and redetermined on the same basis in the reassessment. Viewed in this context it is contended that the power to revise the assessment insofar as the impugned amount of interest allowed in the original assessment was concerned, must be exercised only within two years from the end of the financial year in which the original assessment was made. We, therefore, uphold the contention of the learned Chartered Accountant in view of the decision of the Supreme Court cited supra, though rendered in a different context. The principle adumbrated in the decision of the Apex Court would appear to have the effect of placing an inherent limitation on the powers of the Commissioner in the domain of revisional jurisdiction under Section 263 of the IT Act in respect of matters which have reached their finality in the original assessment and left undisturbed in the reassessment. In this view of the matter, we hold that the order of the Commissioner of Income-tax under Section 263 for the assessment year 1983-84 having been passed on 20-2-1989 is barred by limitation as the original assessment for this year stood completed by 31-1-1986. The order under Section 263 for the assessment year 1984-85 was passed within the time allowed under Section 263(2) of the IT Act, such order having been passed on 20-2-1989, in relation to the original order of assessment dated 23-7-1986. Thus, we uphold the contention of the assessee for the first year and reject his contention for the second year on the issue of limitation.
7. In the result, the appeals are allowed.