Commissioner of Income Tax vs Panna Knitting Industries

D.M. Dharmadhikari, C.J.—These two reference cases are being decided by this common order as the same were decided by the Tribunal by a common order.

The following common question of law in the two reference cases has been referred for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the Commissioner of Income Tax has no jurisdiction to pass order u/s 263 of the Income Tax Act, 1961 ?"

In the assessment case of the year 1979-80 of the two assessee-companies herein, weighted deduction u/s 35B was allowed in relation to three items, but it was disallowed on the item "export freight". Aggrieved by the order of the Assessing Officer, the assessee went in appeal u/s 251 of the Act before the Commissioner (Appeals). The Commissioner (Appeals) however, confirmed the order of the Income Tax Officer disallowing the assessee''s claim of weighted deduction u/s 35B in relation to item No. 1, i.e, export freight. The Commissioner of Income Tax, however, initiated revisional proceedings u/s 263 of the Act as, according to him, weighted deduction u/s 35B of the Act was wrongly allowed by the Income Tax Officer in respect of items Nos. 2, 3 and 4 such as foreign travelling, export service charges and export commission. The Commissioner of Income Tax passed an order directing the Income Tax Officer to withdraw the weighted deduction allowed in respect of items Nos. 2 to 4 described above.

Being aggrieved by the order of the Commissioner of Income Tax, the assessee went in appeal before the Tribunal. There was a difference of opinion between the two members of the Tribunal and the matter was referred to the Third Member on the question of maintainability of revisional proceedings for withdrawing the weighted deduction in respect of the items mentioned above. By a majority opinion, the Tribunal came to the conclusion that the Commissioner of Income Tax had no jurisdiction to exercise revisional powers u/s 263 of the Act as the order of the Assessing Officer had merged in the appellate order.

It is on the above facts that the above quoted question of law has been referred to this court.

On behalf of the Revenue, learned counsel Mr. Bharat Naik relies strongly on the decision of the Supreme Court in the case of COMMISSIONER OF Income Tax Vs. SHRI ARBUDA MILLS LTD., . He points out that Explanation (c) has been added by the amendment to Section 263 of the Income Tax Act purposely to meet the objections similar to the one raised by the assessee in this case. Explanation (c) which has been quoted and relied on by the Supreme Court in the case of COMMISSIONER OF Income Tax Vs. SHRI ARBUDA MILLS LTD., reads as under (page 52);

"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 Assessing Officer had been the subject-matter of any appeal filed on or before or after June 1, 1988, the powers of the Commissioner 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."

Learned counsel appearing for the assessee made an effort to distinguish the decision of the Supreme Court by contending that here the question was the claim to weighted deduction u/s 35B of the Act. On three items, the deduction was allowed. It was disallowed only on one item. The assessee had gone up in appeal u/s 251 against disallowance of weighted deduction in respect of only one item. The powers of the appellate authority u/s 251 are co-extensive with the powers of the assessing authority and the appellate authority in exercise of his powers could have withdrawn the weighted deduction allowed for the remaining three items. In such a situation, learned counsel contends, the revisional powers could not have been exercised. A distinction is sought to be drawn on the opinion of the Supreme Court in the case of COMMISSIONER OF Income Tax Vs. SHRI ARBUDA MILLS LTD., stating that there were various items of deduction and depreciation climed by the assessee under different section of the Income Tax Act and in those circumstances the Supreme Court referred to Explanation (c) in Section 263 for coming to the conclusion that the theory of merger of the order of assessing authority in the order of the appellate authority could not be applied. We do not find any such distinction as is sought to be pointed out by counsel for the assessee in the opinion of the Supreme Court in the case supra.

It is true that the powers of the appellate authority u/s 251 are co-extensive with the powers of the assessing authority and the former authority had power to even withdraw the allowance of weighted deduction in respect of the aforesaid three items. The Legislature has, however, by incorporating Explanation (c) to Section 263 of the Act conferred powers on the revisional authority which are co-extensive with the powers of the appellate authority. It is only with a view to empower the revisional authority to exercise the powers of the appellate authority in respect of such matters which have escaped the attention of the appellate authority that Explanation (c) to Section 263 has been added to protect the interests of the Revenue. The Supreme Court decision in the case of COMMISSIONER OF Income Tax Vs. SHRI ARBUDA MILLS LTD., squarely covers the question referred to us and it is, therefore, answered in favour of the Revenue and against the assessee.

The references are accordingly disposed of with no order as to costs.