WEST COAST CONSTRUCTION CO Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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S. Rajaratnam, Accountant Member -
(1.) THIS is an appeal filed by West Coast Construction Co. of Bangalore objecting to the order of the Commissioner, Karnataka-I, under Section 263 of the Income-tax Act, 1961 ('the Act') for the assessment year 1979-80.
(2.) The assessee is a firm of constructors undertaking construction of dams. The ITO computed the income at Rs. 1,85,870 after making some disallowances and restricting depreciation claimed on Electrical Compressors and Stone Crushing Machinery. This order had become the subject-matter of appeal before the Commissioner (Appeals) and this Tribunal. When the matter was pending before this Tribunal, the Commissioner was of the opinion that the depreciation allowed on Tower Crane at 30 per cent, as claimed by the assessee, was erroneous. He, therefore, issued notice under Section 263. The assessee objected to the jurisdiction of the Commissioner on the ground that the order of the ITO has merged with the order of the Commissioner (Appeals). The assessee had also relied upon the decision of the Karnataka High Court in the case of Vijayalakshmi Lorry Service [ITRC No. 77/73 dated 17-9-1975]. The Commissioner, however, chose to follow a decision of the Gujarat High Court in the case of Karsandas Bhagwandas Patel v. G.V. Shah, ITO  98 ITR 255 and rejected the contention of the assessee on the question of jurisdiction. As for merits, he did not accept the assessee's explanation that the Tower Crane was an earth-moving machinery employed in construction of dam and, therefore, eligible for allowance of 30 per cent. Similarly, the contention of the assessee that there was no material before the Commissioner to assume prejudice to the revenue was also rejected. The assessee is, therefore, in appeal before us.
The learned counsel for the assessee repeated his objections to the jurisdiction of the Commissioner on two grounds, the first one relying on the merger theory and the second one on the ground, that the issue of depreciation was specifically considered by the ITO and that the Commissioner has no material whatsoever to presume prejudice against revenue. He also claimed that the assessee was entitled to the claim on merits. The learned departmental representative claimed that the records did not indicate active application of the mind of the ITO on the question of assessee's entitlement to depreciation at the higher rate of 30 per cent on Tower Crane. He claimed that there was no material to suggest that it was a earth-moving machinery. He, therefore, argued that the Commissioner was justified, in presuming prejudice as, it is now well established, there is prejudice in a case of non-enquiry even as held by the Karnataka High Court in the case of Thalibai F. Jain v. ITO  101 ITR 1, besides, he merely restored the matter to the ITO to consider the matter afresh. He, therefore, argued that the assessee was not really prejudiced if it had a case on merits. As for merger theory, he claimed that the decision of the Karnataka High Court in Thalibai's case (supra), has not been accepted and argued that the Supreme Court has already held that the doctrine of merger is not of universal application in a sales tax case in State of Madras v. Madurai Mills Co. Ltd.  1 SCR 732.
(3.) WE have carefully considered the records as well as the arguments. WE find that it is not in dispute that the Karnataka High Court decision in the case of Vijayalakshmi Lorry Service (supra) should help the assessee on the question of jurisdiction. Since this was the ruling decision, we have no doubt whatsoever in our mind that the Commissioner was not justified in ignoring this decision, which was binding on him, especially after the legal position was pointed out to him. WE have also not distinguished the same. It was not open to him to prefer a decision of the another High Court. Incidentally, the decision relied upon by him relates to the power of rectification under Section 35 of the Act, though there is a similar decision in support of the revenue under Section 263 in a recent decision of the Madhya Pradesh High Court in Jaora Sugar Mills Ltd. v. Union of India  134 ITR 385. However, there are a number of other decisions of other High Courts taking the same view as that of the Karnataka High Court and it is not necessary to recall the same here. The AAC has the power of enhancement and once an order becomes a subject-matter of appeal before him, it is only reasonable that the Commissioner does not have the right under Section 263 not only in respect of matters which had become the subject-matter of appeal, but also in respect of those matters which could have become the subject-matter of appeal or which could have become the subject-matter of enhancement. The scheme of the Act is such that the power under Section 263 is available only against the order of the ITO and not against the order of the AAC. In view of the decision of the Karnataka High Court in Thalibai's case (supra) the assessee is entitled to succeed on the question of jurisdiction. In the view we have taken, it is not necessary to go into the further questions whether there was any justification in the records for presuming prejudice to the revenue or whether the Commissioner was really justified in taking the view that the matter called for further investigation, as to whether the assessee was eligible for higher rate of depreciation at 30 per cent. WE do not go into these questions and allow the appeal on the simple ground that the order of the ITO had merged with the order of the first appellate authority and, subsequently, that of the Tribunal and, therefore, not available for action under Section 263 even in respect of matters not dealt with in the appellate orders.;
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