Commissioner of Income Tax vs Century Enka Ltd.

Sengupta, J.—In this reference u/s 256(2) of the income tax Act, 1961 (''the Act'') for the assessment year 1980-81 the following questions of law have been referred to this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Commissioner had no jurisdiction to initiate proceedings u/s 263 of the income tax Act, 1961?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in vacating the order u/s 263 of the income tax Act, 1961 passed by the Commissioner, Calcutta?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the work-in-progress should be added in the computation of capital employed for the purpose of deduction u/s 80J of the income tax Act, 1961?

Shortly stated, the facts leading to this reference are that the assessee is a resident public limited company and the assessment year involved is 1980-81 for which the accounting period ended on 30-9-1979. The income tax assessment year 1980-81 was completed u/s 143(3)/144B of the Act, on 15-9-1983. In the said assessment the Assessing Officer allowed deduction u/s 80J of the Act in respect of Unit No. 2 of the assessee-company. The deduction u/s 80J was allowed at Rs. 58,50,638, being 7.5 per cent of the capital employed of Rs. 7,80,08,706. In the computation of the capital employed of Rs. 7,80,08,706 an amount of Rs. 22,31,906 was included representing work-in-progress.

On an examination of the relevant assessment record of the assessee- company the Commissioner, Calcutta, found that the computation of capital employed for Unit No. 2 was erroneously made by taking into account work-in-progress amounting to Rs. 22,31,902 which has resulted in and excess relief u/s 80J. Accordingly, he considered that the assessment made was prejudicial to the interest of the revenue. Accordingly, the Commissioner after observing the necessary formalities passed an order u/s 263 of the Act on 4-3-1986 directing the Assessing Officer to compute the capital employed by deducting the capital work-in-progress of Rs. 22,31,902 and to allow deduction u/s 80J accordingly.

In course of hearing of the proceedings u/s 263 before the Commissioner, the assessee-company contended that the assessment order stood merged with the order of the Commissioner (Appeals) and the Commissioner had no jurisdiction to take action u/s 263 in this case. It was contended that there was no mistake in the computation of capital by taking into account the capital work-in-progress amounting to Rs. 22,31,902 in view of the decision of this Court at Calcutta in the case of Commissioner of Income Tax Vs. Indian Oxygen Ltd., The Commissioner considered the points raised by the assessee-company and found that the Commissioner (Appeals) had no occasion to consider the issue of capital employed or deducting the work-in-progress for the purpose of calculating deduction u/s 80J at the time of appeal before him. Hence, according to him, there was no question of merger of the assessment order with that of the order of the Commissioner (Appeals). The Commissioner also noticed that the decision of the Hon''ble High Court in the case of Indian Oxygen Ltd. (supra) had not yet become final and a SLP was pending before the Hon''ble Supreme Court. Thus, the Commissioner passed the order u/s 263 as stated above.

Being aggrieved, the assessee preferred appeal before the Tribunal. The assessee-company reiterated the submissions earlier advanced before the Commissioner. The Tribunal after hearing the contentions of the assessee and of the department, held that the Commissioner was not justified in taking action u/s 263 as the Assessing Officer''s action was in accordance with the judgments of the various High Courts including the Calcutta High Court. The Tribunal, therefore, vacated order u/s 263 of the Commissioner and allowed the assessee''s appeal.

It is not in dispute that the third question is now concluded by the decision of this Court in the case of Indian Oxygen Ltd. (supra). It was held therein that the amount representing the value of the capital shown under the head ''work-in-progress'' at the beginning of the previous year should be included in the computation of the ''capital employed'' for the purpose of working out of the relief u/s 80J(1) which was previously section 84(1) of the Act. Following the said decision we answer the third question in this reference in the affirmative and in favour of the assessee.

We may record here that in view of the contentions on merits having been decided in favour of the assessee the Tribunal did not go into the question as to whether the Commissioner had any jurisdiction to initiate the proceedings u/s 263. In that view of the matter, the first and the second questions are purely academic and we decline to answer those questions. There will be no order as to costs.

Sen, J.

I agree.