Binding revisional order and section 41(2) computation determine deductibility of reserves and liabilities from sale consideration.

A prior unappealed revisional order under section 263 bound the Assessing Officer in the fresh assessment, so directions under section 144A could not displace it. The Commissioner's revision was therefore valid because the assessment made contrary to the earlier final revisional findings was erroneous and prejudicial to the Revenue. For computing balancing charge under section 41(2), contingencies reserve, development reserve and regular payment deposit were treated as liabilities, not deductible from sale consideration, and the assessee failed to prove that consumers' contribution was a reserve. The full sale consideration was accordingly taken into account and the claimed deductions were disallowed.

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Issues: (i) Whether the Commissioner was justified in revising the assessment under section 263 after the Income-tax Officer, acting on directions under section 144A, reframed the assessment; (ii) whether the amounts representing contingencies reserve, development reserve, regular payment deposit and consumers' contribution were deductible from the sale consideration for computing profit under section 41(2).

Issue (i): Whether the Commissioner was justified in revising the assessment under section 263 after the Income-tax Officer, acting on directions under section 144A, reframed the assessment.

Analysis: The earlier order under section 263 had already directed a fresh assessment and had conclusively held that the contingencies reserve, development reserve and regular payment deposit were not deductible from the sale consideration. That order was not appealed against and therefore attained finality. The Income-tax Officer was bound to carry out that direction, and the directions issued under section 144A could not override the Commissioner's earlier revisional order. The assessment framed contrary to the earlier revisional findings was therefore erroneous and prejudicial to the interests of the Revenue.

Conclusion: The revisional action under section 263 was valid and the assessee's challenge on jurisdiction failed.

Issue (ii): Whether the amounts representing contingencies reserve, development reserve, regular payment deposit and consumers' contribution were deductible from the sale consideration for computing profit under section 41(2).

Analysis: The agreement showed that the assessee transferred its capital assets for a consideration of Rs. 13 lakhs. The earlier revisional order had already held that the contingencies reserve, development reserve and regular payment deposit were liabilities and not deductible items. The assessee did not establish that the consumers' contribution was a reserve rather than a liability. On the facts, the full sale consideration had to be taken into account for the purpose of computing the balancing charge under section 41(2).

Conclusion: The full amount of Rs. 13 lakhs was rightly taken for computing the section 41(2) profit, and the claimed deductions were not allowable.

Final Conclusion: The assessment as revised by the Commissioner was upheld, and the assessee's objections to the computation of section 41(2) profit were rejected.

Ratio Decidendi: A prior unappealed revisional order under section 263 binds the assessing authority in the fresh assessment, and amounts retained or transferred in discharge of statutory or liability-related obligations are not deductible from the sale consideration for computing profit under section 41(2).

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