Commissioner of Income Tax vs Sandur Manganese Iron Ores (P.) Ltd.

G.C. Bharuka, J.—The Income Tax Appellate Tribunal, Bangalore Bench, has referred the following question of law for an answer by this court as required u/s 256(1) of the Income Tax Act, 1961 (in short, "the Act"):

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the Commissioner of Income Tax had no jurisdiction to pass an order u/s 263 in view of the Karnataka High Court judgment in the case of Commissioner of Income Tax, Karnataka-I Vs. Hindustan Aeronautics Ltd., , although the point involved was not the subject-matter of appeal ?"

The assessee is a company deriving income from extracting iron ore. For the assessment year 1983-84 to which this reference relates, the assessee had declared loss of Rs. 5,00,16,716. The Assessing Officer completed the assessment on March 27, 1986, u/s 143(3) of the Act by determining the net loss at Rs. 3,04,91,342. This order is placed at annexure A. The assessee being aggrieved by the order of assessment on three accounts, i.e., non-allowance of deduction in respect of the contribution to Sandur Public School and Sandur Education Society as "staff welfare expenditure" ; non-allowance of depreciation and investment allowance, as also the deduction u/s 80J, went in appeal to the Commissioner of Income Tax (Appeals), who by his order dated August 20, 1987 (annexure B), remanded the matter for re-examination.

Subsequent to the passing of the above order by the Commissioner of Income Tax (Appeals), the Commissioner of Income Tax having found that the assessment order passed by the Assessing Officer was prejudicial to the interests of the Revenue in relation to a claim of Rs. 14,29, 191 for bad and doubtful debts and grant of deduction u/s 80HHC invoked his power of suo motu revision u/s 263 of the Act by issuing notice to the assessee. Subsequently, after hearing the assessee, he passed an order dated March 28, 1988 (annexure D), holding that no deduction on the above two counts was permissible in law and directed the Assessing Officer to reframe the assessment after deleting the said deductions. The said order was questioned by the assessee by preferring an appeal before the Income Tax Appellate Tribunal, which set aside the order of the Commissioner passed u/s 263 of the Act on the basis that in view of the law laid down by a Full Bench of this court in the case of Commissioner of Income Tax, Karnataka-I Vs. Hindustan Aeronautics Ltd., , wherein it was held that (headnote) :

"The Appellate Assistant Commissioner can look into and adjudicate upon findings recorded by the Income Tax Officer not only against the asses-see which may expressly be the subject-matter of an appeal but also upon a matter which has been considered and determined by the Income Tax Officer in the course of the assessment. In other words the entire subject-matter of the assessment would be within the jurisdiction of the Appellate Assistant Commissioner."

Subsequent to the judgment of the Full Bench, Parliament had amended Section 263 of the Act by the Finance Act, 1989, with retrospective effect from June 1, 1988. By this amendment, an Explanation was added to Section 263 of the Act which 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 Assessing Officer had been the subject-matter of any appeal filed on or before or after the 1st day of June, 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."

A three-judge Bench of the Supreme Court in the case of COMMISSIONER OF Income Tax Vs. SHRI ARBUDA MILLS LTD., , after taking into account the above amendment to Section 263 has held that (page 52) :

"The consequence of the said amendment made with retrospective effect is that the powers u/s 263 of the Commissioner 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 Commissioner u/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."

In the present case, admittedly, the items relating to bad debts and deduction u/s 80HHC of the Act were not the subject-matter of appeal before the Commissioner of Income Tax (Appeals) and, therefore, the Commissioner of Income Tax was wholly within his jurisdiction to consider the same and give appropriate directions in that regard as has been done in the above case.

The question referred to us is therefore answered in the negative, i.e., against the assessee and in favour of the Revenue. The reference is answered accordingly. No order as to costs.