Income Tax Appellate Tribunal - Agra
S.K.Jain L/H Late Smt. Nemshri Jain, ... vs Assessee on 13 April, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
AGRA BENCH, AGRA
BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND
SHRI P.K. BANSAL, ACCOUNTANT MEMBER
ITA No.199/Agr/2005
Asst. Year: 2000-01
Shri S.K. Jain, Vs. C.I.T., Aligarh.
L/H. of Late Smt. Nemshri Jain,
Vishal Garments,
Sadar Bazar,
Mainpuri.
(PAN : ADPPJ 1737 M).
(Appellant) (Respondent)
Appellant by : Shri R.C. Tomar, I.T.P.
Respondent by: Shri S.R. Sahu, Jr. D.R.
ORDER
PER P.K. BANSAL, A.M.:
In this case the difference arose between the Members of the Division Bench hearing this appeal. Therefore, the matter was referred to the opinion of the ld. Third Member. The ld. Third Member has agreed with the view of the ld. Judicial Member. Therefore, in view of the majority decision, the assessee succeeds in its appeal.
2. In the result, appeal of the assessee is treated as allowed.
(Order pronounced in the open Court on 13.04.2010).
Sd/- Sd/-
(R.K. GUPTA) (P.K. BANSAL)
Judicial Member Accountant Member
Place: Agra
Date: 13th April, 2010.
2
PBN/*
Copy of the order forwarded to:
1. Appellant
2. Respondent By Order
3. CIT concerned
4. CIT (Appeals) concerned
5. DR, ITAT, Agra Bench, Agra
6. Guard File Assistant Registrar
Income-tax Appellate Tribunal, Agra
True Copy
3
IN THE INCOME TAX APPELLATE TRIBUNAL
AGRA BENCH, AGRA
BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER
(AS THIRD MEMBER)
ITA No.199/Agr/2005
Asst. Year: 2000-01
Shri S.K. Jain, Vs. C.I.T., Aligarh.
L/H. of Late Smt. Nemshri Jain,
Vishal Garments,
Sadar Bazar,
Mainpuri.
(PAN : ADPPJ 1737 M).
(Appellant) (Respondent)
Appellant by : Shri R.C. Tomar, I.T.P.
Respondent by: Shri S.K. Mishra, Sr. D.R.
ORDER
Hon'ble President under section 255(4) of the Income-tax Act, 1961 ('the Act' hereinafter) has nominated me to decide the points of difference on the following grounds arising due to the difference in opinion between the ld. Judicial Member and the ld. Accountant Member as referred to by them vide letter dt.15th January, 2009 :-
"(1) That the order of the learned CIT, Aligarh is bad in law and on facts of the case.
(2) That the learned CIT has erred in the eye of law by not accepting the plea of the appellant that the assessment order passed by the Assessing Officer has merged with the order of learned CIT(A)'s order and both had considered the will of the mother of the appellant, hence the provisions of section 263(1)(c) of the Income Tax Act, 1961 were applicable in the matter.
(3) That the learned CIT has erred in the eye of law by not accepting the observations of Hon'ble Supreme Court in the case of CIT Vs. Shri Arbuda Mills Limited (231 ITR 50) that the powers of Commissioner of Income Tax shall extend and shall be deemed to have extended to matters not considered and decided in appeal filed by the assessee to CIT (Appeals).4
In the case of the appellant the assessing officer had duly considered the will of Smt. Maro Devi, mother of Smt Nemshri Jain and the same was considered by the earned CIT (Appeals) in her appeal order. The addition made by the Assessing Officer on account of difference amount of Rs.50,000-00 between the amount shown in Will and the capital statement submitted by the appellant was deleted by the learned CIT(Appeals).
(4) That the learned CIT has erred in the eye of law by not accepting the plea of the appellant that as per law it is not compulsory to obtain probate of will in the state of Uttar Pradesh. In this regard the appellant had mentioned decisions of Hon'ble High Court of Allahabad in the case of Atma Prakash Vs. the 3rd All. D.J. Saharanpur & Other (Allahabad Rent case 1983 page 415) and Bhaiyaji Vs. Jageshwar Dayal Bajpai (AIR 1978 Allahabad 268).
The observations of the learned CIT in his order 'that these case laws are not applicable in the case of the appellant because the probate is not required if the Will made by the Hindu is relating to immovable property situated in U.P., whereas the Will of Maro Devi is related with Cash and jewellery i.e. the movable property' are not correct and bad in the eye of law.
(5) That the learned CIT has erred on facts of the case by making the observation that the appellant has not furnished any evidence to prove that the cash and jewellery was actually owned by Smt. Maro Devi and she was capable enough to dispose off legally.
That the appellant had submitted affidavit of Smt Neelam Prabha Jain sister of Smt. Nemshri Jain before the learned CIT. She had stated on oath that his father had died in the year 1959. She were five sisters and having no brother, hence her mother had no trust on anybody. Two sisters had expired during lifetime of Smt. Maro Devi. The Will was written by her and had also witnessed by her. A statement of Smt Neelam Prabha Jain was also recorded u/s. 131 of the Income Tax Act, 1961 and she confirmed that she had written and witnessed the will. She further confirmed that after death of her mother cash and jewellery was handed over to the appellant.
The learned CIT has made observations that the appellant has not furnished any proof as regard the factual existence of cash of Rs.4,00,000-00 and 20 tolas of gold. These observations are based on conjectures, suspicions or surmises or on a failure to consider the relevant evidence on record.
The learned CIT has made extraneous references without considering the facts and law hence order of the learned CIT should be cancelled."
5
2. The brief facts of the case are that the assessee, as an individual, submitted his return declaring an income of Rs.55,000/-. A survey under section 133A of the Act was conducted on 03.03.2000 in the residential premises of the assessee. The wife of the assessee, Smt. Nemshri Jain had purchased an old residential house in two parts which was renovated during the Financial Year (F.Y.) 1996-97 to 1999-2000. The year-wise break-up of the investment made in the construction/renovation of the house was duly shown in the capital account of the assessee. The A.O. referred the matter to the D.V.O. for ascertaining the cost of the construction of the residential house. The Valuation Officer estimated the cost of construction at Rs.8,31,800. The assessee has shown the investment at Rs.4,50,000/- during the four Assessment Years (A.Y.). The A.O. made the addition of Rs.4,48,577/- in an order passed under section 143(3). While enquiring the source of the investment, the assessee claimed to have received the assets through a Will of his mother Smt. Maro Devi. He claimed that he received 20 tolas of gold and cash of Rs.4,50,000/- as per the Will. The A.O. accepted the Will as genuine but restricted the cash received by the assessee at Rs.4,00,000/- through the Will as against Rs.4,50,000/- claimed by the assessee and made the addition of Rs.50,000/-. The assessee, against the order passed under section 143(3), went in appeal before the CIT(A) and the CIT(A) deleted the addition of Rs.50,000/- and Rs.4,48,577/- as per para nos.3.2 & 4.3 of his order dated 08.07.2003. At the cost of repetition, the relevant observation of the CIT(A) in para nos.3.2 & 4.3 are reproduced as under :-
"(3.2) I have considered the grounds taken by the A.O. on the basis of which the addition has been made vis-à-vis the grounds taken by the appellant before the A.O. and during the course of appeal proceedings. The appellant has admittedly received the amount as per the Will of his mother, Smt. Maro Devi who died in the year 1989-90 and, therefore, the difference, if any, in the actual amount stated to have been received by the appellant as against the same receivable as per Will was liable to be added in the income of the year in which the same was actually received. Not only this, the appellant had admittedly invested those proceeds in purchase of property prior to the year 1982 and hence the A.O. was not justified in making the addition on account of the difference noted by him in the year under 6 consideration which is A.Y. 2000-01. Therefore, the addition made by the A.O. of Rs.50,000/- is hereby deleted. (Relief: Rs.50,000/-).
"(4.3) I have considered the grounds taken by the A.O. on the basis of which the addition has been made vis-a-vis the grounds taken by the appellant before the A.O. and during the course of appeal proceedings. The appellant assessee before the A.O. has duly reconciled the differences in the valuation of property, as done by the Departmental Valuation Officer vis-a- vis the value shown in the books of accounts of the appellant. He furnished the reports from two Government Approved Valuers who have pointed out each and every item whereby the DVO has taken the value different from that by the appellant whose two reports also show the reasons for the difference which are mainly on account of the Malba used or which could be used by the appellant in further construction and renovation as it was the built property and not plot of land. Further, the difference in the DVO's report was on account of ignoring the revised rates of PWD in 1997 and estimating the cost of several items on higher side as against the actual cost as per the invoice of purchases of those items which were duly and admittedly produced by the appellant assessee to the Departmental Valuation Officer and the details of which already form part of the DVO's report. The DVO or the A.O. has not pointed out anything as to why those invoices giving the actual purchase price of the items have not been relied upon instead a higher value has been taken. Further, though the DVO has given margin for self- supervision but the A.O. has further added that sum on the ground that the appellant assessee was not having technical knowledge or was not an Engineer. Obviously, for supervision of the building, technical expertise of being a Civil Engineers is not needed and the property being used by the appellant for his business purposes on the first floor of which construction was done, it cannot be said that the appellant assessee was not available for self-supervision. Considering the differences reconciled by the Government Approved Valuer, there remains a difference of only 3% which is also liable to be ignored as the report is based on estimation and, as has been held in several judgments, a difference up to a reasonable percentage of about 10 to 15% needs to be ignored if no specific discrepancy has been noted in the books of the appellant. Last but not the least is that the A.O. has added the entire difference in the value of the property in the year under consideration while admittedly the property was constructed in a span of 4 years starting from 1996 to 2000. The Departmental Valuer's Report placed in the AO's record also points out the construction done in these 4 years as has been quoted above in this order and as per which even the difference noted by the DVO in the year under consideration is that of only Rs.80,900/- as against which the A.O. has added the entire difference relating to all the 4 years. The entire addition is, however, deleted on the basis of discussion made as above. The appellant would thus get a relief of Rs.4,48,577/-. (Relief:
Rs.4,48,577/-)" 7
3. The Revenue went in appeal before the Tribunal in ITA No.456/Agr/2003 challenging the order of the CIT(A) by taking various other grounds. One of the grounds being ground no.3 read as under :-
"That the Commissioner of Income-tax (A) has erred in accepting the balance of Rs.50,000/- as received by will when there was no evidence that the "Will" was legal, probated nor indeed did such an amount find mention in the will"
4. When the appeal was pending before the Tribunal the CIT issued notice dated 22.04.2004 asking the assessee why the order passed under section 143(3) dated 28.03.2003 may not be revised under section 263 of the Act. Ultimately, the CIT vide order dated 23.02.2005 cancelled the assessment order passed by the A.O. being erroneous and prejudicial to the interest of the Revenue and directed the A.O. to examine the issue as pointed out in the order and pass a fresh assessment order as per the law after affording opportunity to the assessee. In the said order, the CIT observed that the assessee vide his reply dated 20.07.2004 submitted that the A.O. had duly considered the will of Smt. Maro Devi, mother of Smt. Nemshri Jain and the same was also considered by the CIT(A) in her order on which the CIT has observed that on going through the order of CIT(A), in para 3.2 of her order, has given a finding on difference of Rs.50,000/- added by the A.O. as the A.O. noted that in the said Will of Smt. Maro Devi cash was shown at Rs.4,00,000/- only whereas the assessee claimed to have received Rs.4,50,000/- through Will. Since the amount of Rs.4,00,000/- bequeathed as a result of Will was not in dispute because the A.O. accepted the Will. Therefore, it cannot be concluded that on the issue of Will, the order of the CIT(A) got merged with the order of the A.O. The CIT was of the view that the A.O. failed to examine whether the Will has been probated or not, whether the bequest of cash and jewellery was as per Hindu Succession Act and whether the said cash and jewellery were part of her "Stri- Dhan" or self acquired property which she could legally bequeathed or was it part of HUF and 8 did the said cash and jewellery factually exist. The Hon'ble Tribunal vide order dated 06.09.2007 had dismissed the appeal of the Revenue. The assessee filed an appeal before the Tribunal against the order of the CIT passed under section 263 of the Act. Both the ld. Judicial Member (J.M.) as well as ld. Accountant Member (A.M.) passed their separate orders.
5. The ld. J.M. was of the view that the order of the A.O. had merged with the order of the CIT(A) and, therefore, the CIT was not having any jurisdiction to pass the impugned order under section 263 of the Act.
6. Ld. A.M., on the other hand, took the view that the order of the CIT(A) has not merged with the order of the A.O. and it is the case where there had not been proper enquiry by the A.O. and, therefore, the order passed under section 263 of the Act was valid one.
7. Before me, the ld. A.R. supported the order of the ld. J.M. and pointed out that the matter before the A.O. relates to the receipt of gold ornaments and cash by the assessee through the "Will". The assessee has claimed that he has received a sum of Rs.4,50,000/- while the A.O. accepted only a sum of Rs.4,00,000/- and made the addition of Rs.50,000/-. The A.O. accepted the validity of the will. Subsequently, the assessee went in appeal before the CIT(A) and the CIT(A) deleted the addition of Rs.50,000/- and has also accepted the validity of the appeal. Against the order of the CIT(A), the Revenue went in appeal before the Tribunal. Once the CIT(A) has passed an order in the same very matter, i.e., the matter relating to the source of the investment in the property, the order of the A.O. got merged with the order of the CIT(A). In view of the specific provision of section 263(1)(c), the CIT does not have the jurisdiction to revise his assessment passed under section 143(3). Once the validity of the will has been 9 accepted by the A.O., after examining the same, the CIT cannot direct the A.O. to take a different view. Reliance was placed on the decision of Hon'ble Supreme Court in the case of CIT vs. Shri Arbuda Mills Limited, 231 ITR 50 (SC). Referring to the decision of Gee Vee Enterprises vs. Addl. CIT, 99 ITR 375 (Del.) as relied by the ld. A.M., it was pointed out that the decision is not applicable to the facts of the case of the assessee. In that case, the facts were entirely different. The assessee has, without filing appeal against the order passed under section 263 before the Tribunal, challenged the action of the CIT by filing Writ under Article 226/227 of the Constitution of India. Under these facts, the High Court has observed that when alternative remedy was available to the assessee, the assessee should not have come before the High Court under Article 227 of the Constitution of India. In that case, there was no merger of the order of the CIT with the order of the A.O. but that is the case where there was failure of the enquiry by the A.O. In the impugned case, the assessee has duly submitted copy of the will. Will was duly examined by the A.O. and even had accepted that the assessee had received a sum of Rs.4,00,000/- through Will. Thus he contended that the order of the CIT passed u/s 263 is illegal and void and must be annulled.
8. Ld. D.R., on the other hand, relied on the order of the ld. A.M. and contended that there had not been merger of the order of CIT(A) in the order of the A.O. on the issues on the basis of which the CIT invoked provision of section 263 of the Act.
9. I have carefully considered the rival submissions and perused the material on record. The assessment for the A.Y. 2000-01 was completed by the A.O. under section 143(3) vide order dated 28.03.2003 making the addition of Rs.50,000/- on the basis of the Will which was 10 produced by the assessee before the A.O. When the matter went before the CIT(A), the CIT(A) deleted the addition by observing as under :-
"(3.2) I have considered the grounds taken by the A.O. on the basis of which the addition has been made vis-à-vis the grounds taken by the appellant before the A.O. and during the course of appeal proceedings. The appellant has admittedly received the amount as per the Will of his mother, Smt. Maro Devi who died in the year 1989-90 and, therefore, the difference, if any, in the actual amount stated to have been received by the appellant as against the same receivable as per Will was liable to be added in the income of the year in which the same was actually received. Not only this, the appellant had admittedly invested those proceeds in purchase of property prior to the year 1982 and hence the A.O. was not justified in making the addition on account of the difference noted by him in the year under consideration which is A.Y. 2000-01. Therefore, the addition made by the A.O. of Rs.50,000/- is hereby deleted. (Relief: Rs.50,000/-).
10. Subsequently the CIT invoked the jurisdiction under section 263 of the Act. Now the question before me is whether the order of the A.O. got merged with the order of the CIT(A) on the matter relating to the addition of Rs.50,000/-. The main reasons for revising the order by the CIT were that the A.O. failed to examine (a) whether, the "Will" has been probated or not ?, (b) whether, the person who bequeathed the said amount and jewellery did so in terms of Hindu succession Act ? and (c) whether, the said cash and jewellery were part of her "Stri-Dhan" or self acquired property which she could legally bequeathed or was it part of HUF and did the said cash and jewellery factually exist ? The assessee in reply took plea that the order of the A.O. got merged with the order of CIT(A) and no proceedings, therefore, be initiated or taken under section 263. This was negated by the CIT. The assessee went in appeal before the Tribunal. Ld. Judicial Member (J.M.) was of the view that the order of the A.O. got merged with the order of the CIT(A) while the ld. Accountant Member (A.M.) was of the view that the order of the A.O. had not been merged with the order of the CIT(A) on the issues on which the proceedings under section 263 were taken. The amendment to section 263 of the Income-tax Act, 1989 has been 11 made by the Finance Act, 1989 with retrospective effect from 1st June, 1988. The relevant part of the amendment reads as under :-
"Explanation : For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, -
(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."
11. In the case of CIT vs. Shri Arbuda Mills Ltd. (1998) 147 CTR (SC) 474 : (1998) 231 ITR 50 (SC); the apex Court also had an occasion to consider the said amendment. The relevant facts reveal that the assessment year in that case was 1975-76 ending on 31st Dec., 1974. The assessment was completed under s.143(3) r/w s.144B, on 31st March, 1978, in which net business loss was computed at Rs.3,61,086 and the income under the head "Capital gains" at Rs.38,874. The ITO had made certain additions and disallowances while computing the loss and income as above and had also accepted, inter alia, the following three claims :
(i) Deduction of a sum of Rs.23,82,621 by way of provision for gratuity.
(ii) Depreciation on Rs.4,21,000 which was paid by the assessee to United Textile Industries as consideration for transfer of installed property of 17,480 spindles and 400 looms of Old Manek Chowk Mills.
(iii) Loss on account of difference in exchange rate which was referable to the purchase of machinery, etc., as revenue expenditure. For the purposes of the present matter, it is only these three items of claim which are relevant.
In the appeals filed by the assessee, the items in respect of which the decision was in its favour were not the subject-matter of appeals. In respect of above three items, the Commissioner exercised its power under s.263 of the IT Act.
12The main contention of the assessee considered by the Tribunal was whether or not the order of the ITO regarding the said three items in respect of which the assessee had no occasion to prefer an appeal had merged in that of the CIT(A) so as to exclude the jurisdiction of the CIT under s.263 of the Act. The apex Court on reference under s.257 of the IT Act, 1961, was required to deal with the following question referred to it :
"Whether, on the facts and in the circumstances of the case, the order of assessment passed by the ITO under s.143(3) r/w s.144B on 31ast July, 1978, had merged with that of the CIT(A) dt. 15th Dec., 1979, in respect of the three items in dispute so as to exclude the jurisdiction of the CIT under s.263 ?"
The apex Court while dealing with the above question applied the amended provision of s.263(1) of the Act to the aforesaid three items which were not the subject-matter of appeal and held as under :
"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."
12. In view of the aforesaid decision of the Supreme Court and the proviso to section 263(1)(c), it is apparent that the powers, under section 263, of the CIT shall extend and shall be deemed always to have extended to such matters as has not been considered and decided in the order passed in appeal on or before or after 01.06.1988. Now the question arises that what is the subject matter of the appeal which has been considered by the CIT(A). The A.O has made the addition on the basis of the Will for a sum of Rs.50,000/- as the amount of the cash mentioned in the Will was Rs.4,00,000/- while the assessee claimed that the mother of the assessee Smt. Maro Devi left Rs.4,50,000/-. Against this addition, the assessee went in appeal before the CIT(A). 13 Thus, the subject matter before the CIT(A) relates to the amount received by the assessee through the Will. When the assessee came in appeal before the CIT(A), the CIT(A) allowed the relief to the assessee and deleted the addition of Rs.50,000/-. The subject matter of dispute, it is not dependent upon whether the particular argument has been considered therein or not. The word 'matter' is wider than the word 'point'. Once a particular matter has been considered and decided in appeal and if any point relating to that remains unconsidered, it cannot be said that the subject matter of appeal had not been considered and decided in such appeal. The subject matter in appeal before the CIT(A) relates to the addition of Rs.50,000/- on the basis of the Will of the mother of the assessee. A subject matter may consist of number of arguments and number of points. If any point, in my opinion, has not been referred to by the CIT(A) in his order, it cannot be said that the matter relating to the addition on the basis of the Will has not been considered. Hon'ble Allahabad High Court in the case of J.K. Synthetics vs. Addl. CIT & Anr., 105 ITR 344 pointed out that the appellate jurisdiction conferred upon the AAC under section 251 of the I.T. Act, extends to confirmation, reduction, enhancement or annulment of the assessment. Hon'ble High Court, while delivering the decision, has considered two decisions of the Hon'ble Supreme Court in the cases of State of Madras vs. Madurai Mills Co. Ltd., AIR 1967 SC 681 and that of CIT vs. Amritlal Bhogilal & Co., 34 ITR 130 (SC) and held as under-
"It was accordingly held that in view of the scope and nature of the appellate powers, the entire subject-matter of the assessment order was within the jurisdiction of the AAC and that being so, the entire assessment order would merge in the appellate order irrespective of the points urged by the parties or decided by the appellate authority. Further, that from the point of view of the applicability of the doctrine of merger, the fact that some points decided by the inferior authority, were, or were not canvassed before the superior authority was not material. It follows, therefore, that once an appeal is taken and decided, the original order merges in the appellate order and thereafter, it is the appellate or which is operative and enforceable and the CIT thereafter loses his jurisdiction under s.263 of the Act."14
13. Similar view has been taken by Hon'ble Mumbai High Court in the case of CIT vs. P. Muncherji & Co., 167 ITR 671 (Mumbai). Similar type of question has arisen before the Hon'ble Gujarat High Court in the case of CIT vs. Nirma Chemicals Pvt. Ltd. [Income Tax Reference No.94 of 1996]. In this case, the assessee claimed deduction under section 80I of the Act. The A.O. partly allowed the claim of the assessee by computing the deduction under section 80I. When the matter went before the CIT(A), the CIT(A) allowed the claim of the assessee to the extent it was disallowed by the A.O. Subsequently, the CIT issued notice under section 263 proposing to disallow the claim under section 80I on the ground that the assets used by the assessee in the Industrial Undertaking were formed part of the old Plant & Machinery and the new Industrial Undertaking of the assessee was formed by reconstruction or restructuring or splitting up of all the business. The assessee contended that the Assessment Order got merged with the order of the CIT(A) and, therefore, the CIT does not have jurisdiction to undertake revision in view of Explanation (c) to section 263(1). When the matter travelled to the High Court, the Hon'ble High Court has held as under :-
"Thus the CIT is entitled to revise an assessment order in so far as the order is erroneous and prejudicial to the interest of revenue, but Explanation (c) places embargo on CIT in case of subject matter of any Appeal which has been considered and decided in such Appeal. In other words, before CIT exercises the jurisdiction u/s 263 of the Act, the CIT is required to ascertain whether the order referred to in sub-section (1) of section 263 of the Act had been the subject matter of any appeal, and if yes, the revisional powers shall be available only if such subject matter had not been considered and decided in such Appeal.
14. The facts of the present case reveal that the assessee claimed relief u/s 80I of the Act. The AO reworked such claim after making necessary inquiries and partially reduced the claim made by the assessee. The assessee carried the matter in Appeal before Commissioner (Appeals) who allowed the Appeal on this count directing the AO to grant relief u/s 80I of the Act as claimed by the assessee without any disallowance. The contention on behalf of the revenue that under provisions of section 80I of the Act an assessee becomes eligible only if the assessee fulfills all the conditions stipulated by sub- section (2) of section 80I of the Act and that computation u/s 80I(1) of the Act is 15 independent of eligibility under sub-section (2) of the said section cannot be accepted. Section 80I(1) of the Act stipulates that an assessee is entitled to deduction from profits and gains derived from an industrial undertaking at the stipulated percentage where gross total income of the assessee includes any profits and gains derived from an industrial undertaking in accordance with and subject to the provisions of this section (emphasis supplied). Meaning thereby, while computing the deductible amount from the taxable income the assessing authority is required to ensure that the profits and gains are derived from an industrial undertaking; such profits and gains are included in the gross total income of the assessee; and the allowance has to be made in accordance with and subject to the provisions of section 80I of the Act. Therefore, to contend that sub-section (1) of section 80I of the Act has to be independently considered i.e. independent of other sub-sections of section 80I of the Act is not a correct proposition, especially when the provision itself says that it has to be in accordance with and subject to the provisions of this section. The provision does not use the phraseology in accordance with and subject to the provisions of the sub-section but refers to the entire section, which includes sub- section (2).
15 Therefore, when the deduction u/s 80I of the Act was granted by the AO after disallowing a part of the claim which was carried in Appeal before Commissioner (Appeals), the Appellate Authority was duty bound to examine whether the claim made by the assessee was in accordance with and subject to the provisions of section 80I of the Act. The requirement of fulfillment of conditions stipulated by sub-section (2) of section 80I of the Act is therefore very much subject matter of the appeal in relation to the income from warehousing which had been disallowed by the AO.
16 The stand of the revenue that the assessment order was silent as regards eligibility or otherwise of section 80I of the Act cannot thus be accepted. As noted hereinbefore the entire section lays down a complete codified scheme in itself for deciding not only the eligibility but also for the computation of the relief to which the assessee is entitled. When the section talks of profits and gains derived from an industrial undertaking the requirement is in relation to the industrial undertaking to which the section applies and which fulfills all the conditions laid down in sub-section (2) of section 80I of the Act. It is not possible to read the provisions in any other manner whatsoever. Hence, the contention that the eligibility or otherwise u/s 80I of the Act was never the subject matter of Appeal requires to be rejected. The Tribunal thus committed an error in law in coming to the conclusion that the prohibition imposed by Explanation (c) to section 263 of the Act would not be applicable.
17 In fact, the Tribunal's order on this count does not discuss as to why and how Explanation (c) to section 263 of the Act does not apply in the facts of the present case. The order only records "9. Considering the rival submissions and the case law cited before us we are of the view that the decision relied upon by the assessee is not applicable to the instant case. To say that the direction of the CIT(A) to recompute the relief under the head 80I amounts to consideration of the fact on eligibility is nor correct. So assessee pleas on lack of jurisdiction u/s 263 are rejected." One would expect that a preliminary issue as regards jurisdiction would have merited better consideration at the hands of the Tribunal.
1618 The contention on behalf of the revenue that the assessment order does not reflect any application of mind as to eligibility or otherwise u/s 80I of the Act requires to be noted to be rejected. An assessment order cannot incorporate reasons for making / granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the AO, considering the workload that he carries and the periods of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with.
As far as absence of discussion in the assessment order is concerned, this is what has been laid down by this Court in the case of Rayon Silk Mills vs CIT, reported at 221 ITR 155 (page 158):
"In the first instance it was contended by learned counsel for the assessee that the very premise on which order u/s 263 was made against the assessee, namely, that the ITO has not at all examined the goodwill account is not existent. According to him, it is apparent from the record that the goodwill account was thoroughly examined by the ITO before making the assessment and after examining when he accepted the contention of the assessee its discussion did not find place in the assessment order, as no additions were going to be made or no modifications in the return filed by the assessee were required to be made in that regard.
This contention of the assessee appears to be well-founded. It is true that the assessment order does not speak about the examination of goodwill account as such. However, as we have noticed above, the assessee in his reply to the show cause notice u/s 263 had specifically mentioned that the entire matter was scrutinized and accepted while passing the assessment order. Our attention was also drawn to annexure "D". A submission made by the assessee to the ITO, Surat dated October 18, 1976, regarding the assessment year 1974-75 giving detailed chronological date of the constitution of the firm on November 11, 1968, induction of four more partners on November 7, 1972, the creation of goodwill in the books of account of the firm by debiting the goodwill account and crediting the old partners' capital accounts in their profit sharing ratio on that date, formation of a private limited company in the name of Rayon Silk Mills Private Limited, and its induction into the firm as partner by the deed of partnership dated October 27, 1973, and the dissolution of the partnership firm on February 23, 1974, leaving the private limited company as a sole proprietor thereof and the valuation of the business at the book value as on that date. After giving the chronological sequence of events, the assessee also contended in his submission before the ITO that there was no actual transfer of any asset inasmuch as when a partner is admitted into the firm no transfer takes place. It was also contended that no cash transfer took place from person to person and the transfer and the dissolution of the firm also did not result in accrual of capital gains. In the face of this material on record, it is difficult to explain that the assessment order was made without making any enquiry into the goodwill account of Rs.10,75,000. ..."17
14. In view of the aforesaid discussions, I am of the view that the subject matter of the appeal since relates to the addition in the case of the assessee on the basis of the Will and since the assessee has gone in appeal before the CIT(A) against the addition made by the A.O. on the basis of the Will, therefore, the order of the CIT(A) got merged with the order of the A.O. on the addition made by the A.O. on the basis of the Will and in view of Explanation (c) to section 263(1). In my opinion, the CIT will not have any jurisdiction to invoke the provisions of section 263, hence the order passed by the A.O. got merged with the order of CIT(A) on subject matter of addition on the basis of the Will. Accordingly, in my opinion, the order of CIT should be cancelled. Thus, grounds no.1, 2 & 3 are decided in favour of the assessee. Grounds no.4 & 5 and other issues since arise out of ground no.2, does not require any adjudication.
15. The matter will now go before the Regular Bench for deciding the appeal in accordance with the majority opinion.
Sd/-
(P.K. BANSAL) Accountant Member Place: Agra Date: 17th February, 2010.
PBN/* Copy of the order forwarded to:
1. Appellant
2. Respondent By Order
3. CIT concerned
4. CIT (Appeals) concerned
5. DR, ITAT, Agra Bench, Agra
6. Guard File Assistant Registrar Income-tax Appellate Tribunal, Agra True Copy