1992 (9) TMI 116 - AT - Income Tax

Tribunal upholds CIT's revision power under Income Tax Act, disallows leave encashment provision as non-deductible expense.

The Tribunal upheld the Commissioner of Income Tax's (CIT) jurisdiction to revise the assessment order under section 263 of the Income Tax Act, rejecting ... Appellate Authority, Orders Prejudicial To Interests Issues Involved:1. Validity of the order passed by the CIT under section 263 of the IT Act on the question of jurisdiction.2. Validity of the order passed by the CIT under section 263 of the IT Act on merits.Issue-wise Detailed Analysis:1. Validity of the Order Passed by the CIT under Section 263 of the IT Act on the Question of Jurisdiction:The primary contention was whether the CIT had jurisdiction to revise the assessment order under section 263, given that the assessment order had merged with the appellate order of the CIT (Appeals). The assessee argued that the assessment order had merged with the appellate order, thereby barring the CIT from revising it. The CIT, however, relied on Explanation (c) to section 263(1) introduced by the Finance Act, 1988, which clarified that the power of the Commissioner under section 263 extended to matters not considered and decided in any appeal filed by the assessee.The Tribunal upheld the CIT's jurisdiction, referencing the Calcutta High Court's rulings in Hindustan Aluminium Corpn. Ltd. v. CIT and Hamilton & Co. (P.) Ltd. v. CIT. These rulings established that the doctrine of total merger was not applicable to orders passed under section 263. The court held that the merger of an assessment order with an appellate order is only partial, limited to the issues actually considered and decided in the appeal. Consequently, the CIT retained the jurisdiction to revise the assessment on issues not addressed in the appeal.2. Validity of the Order Passed by the CIT under Section 263 of the IT Act on Merits:On the merits, the CIT disallowed the provision of Rs. 36,28,000 for leave encashment, relying on the Calcutta High Court's decision in CIT v. Bharat General & Textile Industries Ltd., which held that such provisions were contingent liabilities and not allowable as deductions.The Tribunal agreed with the CIT's decision, noting that the provision for leave encashment was not an existing liability but a contingent one. The Tribunal referenced the Calcutta High Court's decision in Bharat General & Textile Industries Ltd.'s case, which directly addressed the issue and ruled against the allowance of such provisions as deductions. Therefore, the Tribunal upheld the CIT's order on merits.Conclusion:The Tribunal dismissed the appeal, affirming the CIT's order under section 263 on both jurisdictional and substantive grounds. The Tribunal concluded that the CIT had the jurisdiction to revise the assessment order on issues not addressed in the appeal and that the provision for leave encashment was rightly disallowed as a contingent liability.