NAIR, J. - (1.) THE CIT, Andhra Pradesh-II has referred the following two questions for the opinion of this Court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the requirement for invoking the powers under S. 263 by the CIT were not satisfied for the asst. yr. 1980-81 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the subsidy received form the Government of Andhra Pradesh amounting to Rs. 87,655 is not assessable to tax under S. 41(1) of the IT Act ?"
(2.) THE assessee-firm had received from the Government of Andhra Pradesh as subsidy an amount of Rs. 87,655 during the accounting year relevant to the asst. yr. 1980-81. It did not disclose the amount in its taxable income, even though in the P&L a/c, that amount was credited as subsidy from the Government of Andhra Pradesh and was included in the net profits as per books. The assessee-firm claimed that the above amount was not taxable as it was not trading receipt. The ITO accepted the claim of the assessee and did not assess the amount of Rs. 87,655. In exercise of powers under S. 263 of the IT Act, the CIT issued notice proposing revision of the assessment so as to enhance assessable income by the amount of Rs. 87,655 under ss. 28(i), (iv) and 41(1) of the IT Act, 1961 ('the Act') In reply to the notice, the assessee relied on the order dt. 24th Jan., 1981 of the Special Bench of the Tribunal, Hyderabad Bench 'B' in the case of Sahney Steel & Press Works Ltd. vs. ITO (sic) in support of the exclusion of the above amount from the taxable income even though the ITO had not adverted to that order. The CIT in his order dt. 4th Feb., 1983 held that the non-inclusion of the above amount was erroneous and it prejudiced the interest of the Revenue. He also noticed that the order of the Special Bench of the Tribunal, on which the reliance was placed by the assessee, was not accepted by the Department which had filed an application for reference and the same was pending before this Court. He also took note of the fact that the period of limitation within which he would exercise power under S. 263(2) was about to be over. It was in these circumstances that the CIT revised the assessment so as to bring to tax the amount of Rs. 87,655 which represented refund of sales tax and power subsidy granted to the assessee by the Government of Andhra Pradesh. The assessee filed an appeal before the Tribunal. The Tribunal found that the exercise of power under S. 263 by the CIT was not justified, since the ITO had not made the assessment erroneously to the prejudice of the Revenue. The Tribunal held that the ITO passed the order of assessment in conformity with the ratio of the decision rendered by the Special Bench of the Tribunal, according to the best of his understanding of the law and it could not be held that he decided erroneously insofar as it prejudiced the interests of the Revenue. On these grounds, the Tribunal held that the CIT was not justified in revising the order of assessment as it could not be said to be erroneous or prejudicial to the interests of the Revenue, as the requirements for invoking the powers under s. 263 by the CIT were not satisfied in the present case. It is that decision of the Tribunal which has provoked the Department to seek reference of the question mentioned above.
(3.) THE counsel for the Revenue submitted that the order of assessment did not indicate that the ITO followed the order of the Special Bench of the Tribunal in relation to non-taxability of subsidy paid by the Government to industrial units like the present assessee. He submitted further that even assuming that he followed the decision of the Special Bench of the Tribunal, it is quite clear form the present order of the Tribunal itself that there were conflicting decisions of the Tribunal on this question and the ITO was not right in following one of those orders, particularly. Since the Department had not accepted the order of the Special Bench of the Tribunal, and that the decision has since been upset by this Court in CIT vs. Sahney Steel & Press Works Ltd. (1985) 44 CTR (AP) 243 : (1985) 152 ITR 39 (AP). According to him, the CIT was right in assuming that the law as declared by this Court in that decision was the law at all relevant times. His further submission was that it was more likely that the ITO did not include the amount of subsidy as taxable income in the order of assessment because the assessee had not disclosed that amount as part of its taxable income.;