AJIT K.SENGUPTA,J. - (1.) In this reference under S. 256(1) of the IT Act, 1961 for the asst. yr. 1977-78, the following question of law has been referred to this Court : "Whether, on the facts and in the circumstances of the case and having regard to the fact that the grounds on which the assessment order was set aside under S. 263 of the IT Act were not the subject-matter of appeal, the Tribunal was justified in holding that the CIT had no jurisdiction to invoke the provisions of S. 263 of the IT Act and in that view in cancelling the order under S. 263 passed by the CIT ?"
(2.) SHORTLY stated the facts are that the CIT exercised his jurisdiction under S. 263 of the IT Act, 1961 in respect of the asst. yr. 1977-78 as, according to him, the order passed by the ITO was erroneous, inasmuch as, the ITO came to the conclusion that only 7/12th of the head office expenses should be taken into account for disallowing the expenses as provided under S. 44C. He also observed that the ITO erred in calculating the correct amount of disallowance. According to the CIT the order of the ITO was erroneous and prejudicial to the interest of the Revenue. He initiated proceedings under S. 263. The assessee protested against the proceedings initiated by the CIT. Amongst other things a point was raised that the CIT(A) heard the appeal filed by the assessee which was disposed of and, therefore, the CIT cannot exercise his jurisdiction under s. 263 in respect of the order of the ITO which was the subject-matter of appeal before the CIT(A). The CIT in his order under S. 263 noted that the CIT(A) upheld the order of the ITO. The point regarding the applicability of S. 44C was the only point agitated by the assessee in the aforesaid appeal. The point whether the head office expenses for the entire year had been taken into account was not agitated by the assessee. Accordingly, he was of the view that the contention of the assessee that action under S. 263 was bad cannot be upheld. The CIT further noted that as the ITO erred in applying a pro rata basis for head office expenses and as there were mistakes in the computation, the CIT set aside the assessment order and directed the ITO to redo the assessment after hearing the assessee. The assessee preferred an appeal before the Tribunal raising various grounds. One of the main grounds related to the claim of the assessee that the CIT had no jurisdiction under S. 263 on the basis of audit objection and such action of the CIT was bad in law. It was further argued that the point regarding the applicability of S. 44C was raised before the CIT(A) who had disposed of the appeal filed by the assessee on 30th Aug., 1980, and, therefore, the CIT had no jurisdiction under s. 263. It was further argued on behalf of the assessee that the CIT(A) omitted to adjudicate on the ground taken by the assessee regarding S. 44C, and on further appeal by the assessee, the Tribunal vide its order dt. 12th Nov., 1981 directed the CIT(A) to dispose of the ground, and, therefore, the CIT had no jurisdiction to act under S. 263. It was also argued on behalf of the assessee that on the facts of the case, the order of the CIT under S. 263 cannot be upheld. Reliance was placed on the decision of the Tribunal in ITA No. 2114/Cal/1980 in the case of Singlo (India) Tea Co. Ltd. dt. 19th July, 1982 and also on another decision in the case of Assam Co. (I) Ltd. being ITA No. 228/Cal/1981 dt. 30th April, 1982. The Tribunal heard the Revenue. It was contended that the issue on which the CIT had acted under s. 263 was not the subject-matter of appeal, and, therefore, the CIT had jurisdiction under S. 263 in the present case. After hearing both the parties, the Tribunal perused the papers placed before it for consideration. It observed that in similar circumstances the Tribunal did not sustain the order of the CIT under s. 263. In the present case before it, the Tribunal noted that the applicability or otherwise of S. 44C was considered by the Tribunal in ITA No. 2040/Cal/1980 in the case of the assessee and by its order dt. 12th Nov., 1981, the Tribunal found that there was no discussion in the order of the CIT (A) regarding this ground. The Tribunal, therefore, sent back this point to the CIT(A) for verifying the correctness of the claim. The Tribunal also referred to the decision of the Special Bench of the Tribunal, Bombay, in the case of Dwarkadas & Co. Pvt. Ltd. vs. ITO (1982) 13 TTJ (Bom)(SB) 107, Bombay 'B' Bench dt. 27th July, 1981 in which it was held that, as a result of the appellate order there was a merger and under such situation the CIT had lost his jurisdiction under S. 263, and, therefore, the order of the ITO cannot be revised. Following the above decisions, the Tribunal was of the view that on the facts of the case, the CIT had no jurisdiction to revise the order under s. 263. Accordingly, the appeal of the assessee was accepted and the order under S. 263 of the CIT was quashed. From the narration of facts it would appear that the question regarding the application of S. 44C was directly in issue before the ITO. The matter also went to the CIT(A). Thereafter it was taken up before the Tribunal. The Tribunal directed the CIT(A) to reconsider the matter on the basis of the directions given in the appellate order of the Tribunal. In such a case it cannot be said that the issue was not considered by the ITO. This is a case where the order of the ITO merged with (that of) the CIT(A) as appeal was preferred and decided on the identical issue. In any event, this question has become purely academic in view of the fact that on merits the assessee was entitled to succeed.
(3.) DIVISION Bench of this Court in Rupanjuli Tea Co. vs. CIT (1991) 92 CTR (Cal) 37 : (1990) 186 ITR 301 (Cal) held that S. 44C had no application to the case of an assessee who does not carry on any business outside India. The facts and circumstances of this case are similar and, accordingly, s. 44C had no application to the case of this assessee. For the reasons aforesaid we answer the question in this reference in the affirmative and in favour of the assessee. There will be no order as to costs. SHYAMAL KUMAR SEN, J.: I agree.;