AJIT K.SENGUPTA, J. - (1.) IN this reference under S. 256(2) of the IT Act, 1961 for the asst. yr. 1980-81 the following questions of law have been referred to this Court : 1. "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the CIT had no jurisdiction to initiate proceedings under S. 263 of the IT Act, 1961 ?" 2. "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in vacating the order under S. 263 of the IT Act, 1961 passed by the CIT (Central-I), Calcutta ?" 3. "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the work-in-progress should be added in the computation of capital employed for the purpose of deduction under S. 80J of the IT Act, 1961 ?"
(2.) SHORTLY stated the facts leading to this reference are that the assessee is a resident public limited company and the assessment year involved is 1980-81 for which the accounting period ended on 30th Sept., 1979. The income-tax assessment for asst. yr. 1980-81 was completed under s. 143(3)/144B of the IT Act, 1961 on 15th Sept., 1983. In the said assessment the Assessing Officer allowed deduction under S. 80J of the IT Act in respect of Unit No. 2 of the assessee company. The deduction under S. 80J was allowed at Rs. 58,50,658 being 7.5% of the capital employed of Rs. 7,80,08,706. In the computation of the capital employed of Rs. 7,80,08,706 an amount of Rs. 22,31,906 was included representing work-in- progress. On an examination of the relevant assessment record of the assessee-company the CIT (Central-I), Calcutta, found that the computation of capital employed for Unit No. 2 was erroneously made by taking into account work-in-progress amounting to Rs. 22,31,902 which has resulted in an excess relief under S. 80J of the IT Act. Accordingly, he considered that the assessment made was prejudicial to the interest of the Revenue. Accordingly, the CIT after observing the necessary formalities passed an order under S. 263 on 4th March, 1986 directing the Assessing Officer to compute the capital employed by deducting the capital work-in-progress of Rs. 22,31,902 and to allow deduction under S. 80J accordingly.
(3.) IN course of hearing of the proceedings under S. 263 before the CIT, the assessee-company contended that the assessment order stood merged with the order of the CIT(A) and the CIT had no jurisdiction to take action under S. 263 in this case. It was also contended that there was no mistake in the computation of capital by taking into account the capital work-in-progress amounting to Rs. 22,31,902 in view of the decision of this Court at Calcutta in the case of CIT vs. Indian Oxygen Ltd. (1978) 113 ITR 109 (Cal). The CIT (Central-I), Calcutta, considered the points raised by the assessee-company and found that the CIT(A) had no occasion to consider the issue of capital employed or deducting the work-in-progress for the purpose of calculating deduction under s. 80J of the IT Act, 1961, at the time of appeal before him. Hence, according to him, there was no question of merger of the assessment order with that of the order of the CIT(A). The CIT (Central- I), Calcutta also noticed that the decision of the Hon'ble High Court in the case of CIT vs. Indian Oxygen Ltd. (supra) had not yet become final and a special leave petition was pending before the Hon'ble Supreme Court of India. Thus, the CIT passed the order under S. 263 as stated above.;