Commissioner of Income Tax vs Span International

M. Katju, J.—This is a reference u/s 256(1) of the Income Tax Act, 1961, in which the following questions have been referred to us for our opinion :

"1. Whether, on the facts and in the circumstances of the case, the learned Tribunal was legally correct in holding that the order of the Income Tax Officer had got merged in the order of the Commissioner of Income Tax (Appeals) and, therefore, the Commissioner of Income Tax had no jurisdiction to revise that order ?

Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law in holding that even on merits, the assessee was entitled to deduction u/s 80HH of the Act ?"

The assessee is a firm and the relevant assessment year is 1976-77. For this year, the Income Tax Officer allowed deduction u/s 80HH of the Act and held that all the requirements of the said section had been satisfied. The Commissioner of Income Tax was of the opinion that the order of the Income Tax Officer was erroneous and prejudicial to the interests of the Revenue and as such he issued notice u/s 263 of the Act, He set aside the order of the Income Tax Officer and remanded the matter for a fresh assessment in so far as deduction u/s 80HH was concerned. The assessee went up in appeal to the Tribunal and the Tribunal allowed the appeal following the decision of the Allahabad High Court in the case of J.K. Synthetics Ltd. Vs. Additional Commissioner of Income Tax and Another, . The Tribunal held that since an appeal had been filed against the assessment order, therefore, the Commissioner of Income Tax had no power to revise the order u/s 263. At the instance of the Department, the above two questions have been referred to us for our opinion.

In our opinion, the first question has to be answered in favour of the Department in view of the amendment of section 263(1), Explanation (c) of the Income Tax Act as amended by the Finance Act of 1989 and as interpreted by the Supreme Court in the case of COMMISSIONER OF Income Tax Vs. SHRI ARBUDA MILLS LTD.,

As regards the second question referred to us, it has to be decided in favour of the assessee since the finding of the Tribunal is that the assessee has complied with all the conditions in section 80HH and this is a finding of fact.

In view of the above, we answer the first question referred to us in favour of the Department and against the assessee and the second question in favour of the assessee and against the Department.