The Commissioner Of Income Tax-Iii, Aayakar Bhawan, Civil Lines, Nagpur … v. Sanvijay Rolling & Engg. Ltd. 9-10 Imambada Road, Nagpur …

IN THE HIGH COURT OF JUDICATURE AT BOMBAYNAGPUR BENCH, NAGPUR. INCOME TAX APPEAL NO.37 OF 2009 ANDINCOME TAX APPEAL NO.39 OF 2009 The Commissioner of Income Tax-III, Aayakar Bhawan, Civil Lines, Nagpur … Appellant -vs- Sanvijay Rolling & Engg. Ltd. 9-10 Imambada Road, Nagpur … Respondent Shri S. N. Bhattad, Advocate for Appellant.Shri K. P. Dewani, Advocate for respondent. CORAM : A. S. CHANDURKAR AND G. A. SANAP, JJ. DATE : December 06, 2021 Common Judgment : (Per A. S. Chandurkar, J.) These appeals under Section 260A of the Income Tax Act, 1961(for short, the said Act) have been admitted on the common substantialquestion of law : “ Whether ITAT was justified in nullifying the exercise ofCommissioner under Section 263 of the Income Tax Act in the presentmatters, in the wake of provisions of Section 263(1)(c) ?” 2.The facts giving rise to the present proceedings are that the respondent-assessee is engaged in the business of manufacturing and tradingof iron and steel items. Search and seizure operations under Section 132 of the said Act were carried out at the residential as well as business premises ofthe assessee on 25/08/2004. Pursuant thereto a notice under Section 142(1)of the said Act was issued to the assessee and in response thereof the assesseefiled return of income on 04/12/2006. On the same day notice underSection 143(2) of the said Act was issued followed by a detailedquestionnaire. After grant of opportunity to the assessee the AssessmentOfficer disallowed deduction sought under Section 80IA and IB of the saidAct. The amount disallowed was Rs.63,500/- under the head “Recoveryagainst the amount written-off in earlier year”. The other disallowance forpurposes of deduction was for Rs.6,20,334/- under the head “Commissionreceipt”. This order was passed on 27/12/2006 by the Assessment Officer.He also initiated penalty proceedings under Section 271(1)(c) of the said Act. 3.The assessee being aggrieved by the aforesaid preferred an appealbefore the Commissioner of Income Tax (Appeals). On 31/01/2007 theCommissioner partly allowed the appeal preferred by the assessee andgranted the deduction as claimed by the assessee under Section 80IA and IBof the said Act. Being aggrieved, the Assistant Commissioner of Income Taxpreferred appeal before the Income Tax Appellate Tribunal which by itsjudgment dated 14/11/2007 was pleased to dismiss the same. The Commissioner of Income Tax in exercise of powers underSection 263 of the said Act issued a notice on 29/10/2007 stating therein 206-ITL-37-09,39-09 that the assessee’s claim for deduction under Section 80IB ought to havebeen rejected by the Assessment Officer but the same had been allowed.Accordingly an order was passed on 20/12/2007 disallowing the deductionunder Section 80-IB of the said Act. Consequently it was held that theassessee was liable for levy of concealment penalty under Section 271(1)(c)of the said Act. 4.The assessee being aggrieved by the aforesaid order passed underSection 263 of the said Act preferred appeal before the Income Tax AppellateTribunal. This appeal along with various other appeals filed by anotherassessee were heard and decided together on 06/03/2009. It was held thatthe Commissioner of Income Tax was not justified in invoking his revisionaljurisdiction under Section 263 of the said Act with regard to disallowanceunder Section 80-IB of the said Act. Consequently the penalty levied underSection 271(1)(c) of the said Act was also cancelled. Being aggrieved theRevenue has preferred ITL No.37/2009 challenging the order passed by theTribunal in IT(SS)A No.13/Nag/2008 for the Assessment Year 2005-06 andITL No.39/2009 challenging the order passed by the Tribunal in ITA No.380/Nag/2008 for the same Assessment Year 2005-06. 5. Shri S. N. Bhattad, learned counsel for the Revenue invitedattention to the order passed under Section 263 of the said Act and sought to 206-ITL-37-09,39-09 5. Shri S. N. Bhattad, learned counsel for the Revenue invitedattention to the order passed under Section 263 of the said Act and sought to 206-ITL-37-09,39-09 justify the conclusion recorded by the Commissioner that the assessee wasnot eligible for any incentive under Section 80-IB of the said Act. Suchbenefit was admissible only to a newly established Small Scale IndustrialUndertaking in which the investment in fixed assets like plant and machinerydid not exceed Rs.3 Crores. Since the assessee’s unit was already inexistence and the same was sought to be expanded, it was rightly held by theCommissioner that the assessee was not entitled to seek such benefit. Theclaim for deduction was therefore rightly disallowed and consequently it wasfound that the assessee was liable for levy of concealment penalty underSection 271(1)(c) of the said Act. He further submitted that the aspect ofmerger was not attracted and the Tribunal committed an error in holdingotherwise. The learned counsel also referred to the provisions of Section263(1)(c) of the said Act in that regard. In support of his submissions thelearned counsel placed reliance on the decisions in Commissioner of IncomeTax, Gujrat-I, Ahmedabad vs. Shri Arbuda Mills Ltd., Ahmedabad (1998) 9 SCC702and Commissioner of Income Tax vs. International Tractors Ltd. 2017(397)ITR 696 and submitted that the order passed by the Tribunal ought to be setaside. 6.Shri K. P. Dewani, learned counsel for the assessee supported theorder passed by the Tribunal. He submitted that since the order passed bythe Assessing Officer had merged in the order passed by the appellate 206-ITL-37-09,39-09 Authority, there was no power with the Commissioner to invoke theprovisions of Section 263 of the said Act. Inviting attention to theAssessment Order it was submitted that disallowance was made for certainamounts under provisions of Section 80-IA and 80-IB of the said Act.Ultimately deduction was permitted to the extent of Rs.8,58,547/- underSection 80-IA of the said Act. In the appeal preferred before theCommissioner of Income Tax (Appeals) the contention raised by the assesseethat it was entitled to seek deductions under Section 80-IA/IB of the said Actwas upheld. This order came to be maintained by the Tribunal in the appealpreferred by the Revenue on 29/10/2007. Thus it was submitted that theorder of Assessing Officer having merged with the order of the Tribunal whenit dismissed the appeal preferred by the Revenue, the jurisdiction underSection 263(1)(c) could not have been invoked by the Commissioner. Thiswas rightly noticed by the Tribunal while passing the impugned order. Tosubstantiate his contention the learned counsel placed reliance on thedecisions in CIT (Exemption) vs. Slum Rehabilitation Authority (2019) 412 ITR0521 (Bom), CIT vs. Nirma Chemicals Works (P) Ltd. (2009) 309 ITR 0067 (Guj),CIT vs. Mehana District Co-operative Milk Producers Union Ltd. (2003) 263 ITR0645 (Guj), Pr. CIT and Anr. vs. H. Nagaraja (2018) 406 ITR 0242 (Karn), CIT vs.Shashi Theatre (P) Ltd. (2001) 248 ITR 0126 (Guj), DCIT vs. Varma IndustrialLtd. (2001) 250 ITR 0472 (Karn), Pr. CIT And Anr. Govt. of India, Ministry ofFinance, Dibrugarh and Anr. vs. Oil India Ltd. (2019) 307 CTR 0403 (Gauhati), CIT vs. Shri Arbuda Mills Ltd. (1998) 231 ITR 0050 (SC) and Commissioner ofIncome Tax vs. Reliance Petroproducts (P) Ltd. AIR 2010 SC 1881.Consequently, it was submitted that if the jurisdiction invoked by theCommissioner under Section 263(1)(c) of the said Act was found to be badthen there would be no question of initiating any penalty proceedings underSection 271(1)(c) of the said Act. He therefore submitted that both theappeals were liable to be dismissed. CIT vs. Shri Arbuda Mills Ltd. (1998) 231 ITR 0050 (SC) and Commissioner ofIncome Tax vs. Reliance Petroproducts (P) Ltd. AIR 2010 SC 1881.Consequently, it was submitted that if the jurisdiction invoked by theCommissioner under Section 263(1)(c) of the said Act was found to be badthen there would be no question of initiating any penalty proceedings underSection 271(1)(c) of the said Act. He therefore submitted that both theappeals were liable to be dismissed. 7.We have heard the learned counsel for the parties and we havegiven due consideration to their respective submissions. For answering thesubstantial question of law as framed, it would be necessary to first refer tothe judgment of Gujarat High Court in Nirma Chemicals Works (P) Ltd.(supra). The facts of the said case indicate that the assessee had claimedrelief under Section 80-I of the said Act. The Assessing Officer partiallyreduced the claim made by the assessee. The assessee therefore challengedthe said order and the Commissioner of Income Tax (Appeals) allowed thatappeal and directed the Assessing Officer to grant relief under Section 80-I ofthe said Act as claimed by the assessee without any disallowance. It washeld on the aspect of merger that when deduction under Section 80-I of thesaid Act was granted by the Assessing Officer after disallowing part of theclaim and the appellate Authority thereafter examined such claim, it wasclear that the appellate Authority was duty bound to examine as to whether 206-ITL-37-09,39-09 the claim made by the assessee was in accordance with and subject to theprovisions of Section 80-I of the said Act. The entire Section was in the formof a complete codified scheme for deciding the eligibility as well as for thecomputation of the relief to which the assessee was entitled. In thatcontext it was held that the Tribunal erred in concluding that the prohibitionimposed by Section 263(1)(c) of the said Act would not be applicable. Thisdecision of the Gujarat High Court has been followed by this Court in SlumRehabilitation Authority (supra). It was held that the provisions of Section 263(1)(c) of the said Act had been incorporated for the purposes of removal ofdoubt and the same was in recognition of the principle of merger so as toavoid any conflict of opinion between two quasi-judicial authorities of thesame rank. 8. The facts on record indicate that the Assessing Officer inproceedings under Section 143(3) of the said Act was pleased to disallow theamount of Rs.63,500/- that was claimed towards recovery of amount written-off in the earlier year as well as amount of Rs.6,20,334/- being towardsreceipt of commission. The Assessing Officer disallowed these deductionsunder Section 80IA of the said Act. This order was challenged by the assesseebefore the Commissioner of Income Tax (Appeals) and on 31/01/2007 theaforesaid two deductions that were disallowed by the Assessing Officer cameto be permitted. A finding was recorded that the deduction as claimed by the 206-ITL-37-09,39-09 8. The facts on record indicate that the Assessing Officer inproceedings under Section 143(3) of the said Act was pleased to disallow theamount of Rs.63,500/- that was claimed towards recovery of amount written-off in the earlier year as well as amount of Rs.6,20,334/- being towardsreceipt of commission. The Assessing Officer disallowed these deductionsunder Section 80IA of the said Act. This order was challenged by the assesseebefore the Commissioner of Income Tax (Appeals) and on 31/01/2007 theaforesaid two deductions that were disallowed by the Assessing Officer cameto be permitted. A finding was recorded that the deduction as claimed by the 206-ITL-37-09,39-09 assessee under Section 80IA/80IB was in accordance with law and washence granted. This appellate order was challenged by the Revenue beforethe Tribunal. In the judgment dated 29/10/2007 the Tribunal subsequentlyconsidered the aforesaid two heads of disallowances and proceeded todismiss the appeal preferred by the Revenue on merits. It was thus clearfrom the aforesaid sequence of events that the order passed by theCommissioner of Income Tax (Appeals) dated 31/01/2007 merged in theorder passed by the Tribunal on 29/10/2007 and attained finality. In otherwords, the order of the Commissioner Income Tax (Appeals) having mergedwith the order of the Tribunal, there was no scope for the Commissioner ofIncome Tax to initiate proceedings under Section 263 of the said Act. Thelegal position that on merger of the order passed by the Commissioner withthat passed by the Tribunal, the jurisdiction under Section 263 (1)(c) of thesaid Act could not have been invoked is settled in view of judgment of thisCourt in Slum Rehabilitation Authority (supra) wherein the judgment of theGujarat High Court in Nirma Chemicals Works (P) Ltd. (supra) was followed. The reliance placed by the learned counsel for the Revenue on thedecision in Arbuda Mills Ltd. (supra) would not assist the case of the Revenuefor the reason that the aspect of disallowances towards the amount written-off as well as receipts towards commission was specifically considered anddecided against the Revenue by the Tribunal. The Honourable SupremeCourt therein has held that the powers of the Commissioner under Section 206-ITL-37-09,39-09 263 of the said Act wouldextend and shall be deemed always to have beenextended to matters that have not been considered and decided in appealfiled by the assessee. The case in hand indicates that the items ofdisallowances were specifically considered by the Tribunal and decidedagainst the Revenue. In that view of the matter the substantial question oflaw as framed is answered by holding that the Tribunal was justified innullifying the exercise of Commissioner under Section 263 of the said Act. In view of aforesaid ITL No.37/2009 stands dismissed with noorder as to costs. 9. Income Tax Appeal No.39/2009 arises in view of theconsequential order passed by the Commissioner of Income Tax underSection 271 (1)(c) of the said Act being set aside by the Tribunal pursuant tothe aforesaid disallowances being permitted. Once it is found that the orderpassed by the Commissioner of Income Tax (Appeals) permitting suchdeductions under Section 80IA/80IB was maintained by the Tribunal inAppeal No.183/Nag/2008 on 29/10/2007 there would be no occasion toinvoke penalty proceedings under Section 271(1)(c) of the said Act foraforesaid items. The basic order permitting such deductions having beenupheld, there would be no occasion to impose any penalty on the assessee.Consequently in view of adjudication of ITL No.37/2009, no substantialquestion of law arises in ITL No.39/2009 and the said appeal stands dismissed with no order as to costs. (G. A. Sanap, J.) Asmita (A. S. Chandurkar, J.)