Judgment:
1. There are a number of grounds in-this appeal but the ground regarding which arguments were made most extensively is an additional ground. It is an important ground. If it is decided in favour of the assessee it would not be necessary to decide the other grounds. That ground is that the order passed by the Income-tax Officer is barred by limitation. It arises in this way.
2. The assessment order has been passed on 24-9-1984 under Section 143(3) read with Section 144B. The assessee had filed objections to the draft assessment order. The Commissioner of Income-tax (Central) had passed an order under Section 125A(1) conferring concurrent jurisdiction over this case on the IAC from 1-11-1978. The assessee's contention is that since this concurrent jurisdiction had been conferred, the provisions of section 144B would not be applicable by virtue of sub-Section (7) thereof so that the extension of limitation period available under Section 153, Explanation 1 (iv) was not available and that therefore, the normal period of limitation was applicable. Since the assessment year is 1981-82 the limitation expired on 31-3-1984. In order to appreciate the controversy it is necessary to set out the material parts of the relevant sections. They are as follows :- 12 5A(1) The Commissioner may by...order direct that all or any of the powers...conferred on...the Income-tax Officer(s)...shall be exercised...concurrently by the Inspecting Asstt. Commissioner.
(2) Where under sub-section (1) the Inspecting Assistant Commissioner exercises concurrent jurisdiction with one or more Income-tax Officers...the Income-tax Officer shall exercise the powers as the Inspecting Assistant Commissioner may direct.
(4) Where an order is made Under Sub-Section (1) and the Inspecting Asstt. Commissioner exercises the powers of an Income-tax Officer references in this Act or any Rule made thereunder to the Income-tax Officer shall be construed as references to the Inspecting Asstt.
Commissioner and any provisions of this Act requiring approval or sanction of the Inspecting Asstt. Commissioner shall not apply.
144B(7) Nothing in this section shall apply to a case where the Dy.
Commissioner exercises the powers or performs, the functions of an Assessing Officer in pursuance of an order made under Section...
The question is whether the jurisdiction under Section 144B is ousted by 3. The learned counsel for the assessee has submitted that since the concurrent jurisdiction had been conferred on the IAC under Section 125A, the Dy. Commissioner had no jurisdiction under Section 144B. On the other hand, the learned Departmental Representative submitted that although concurrent jurisdiction had been so conferred, that jurisdiction was not exercised by the IAC and so Section 144B was fully applicable. Before, however, we enter upon consideration of this argument one point which was taken by the learned D.R. may be considered at the outset. The learned D.R. pointed out that the assessee in this case had submitted to the jurisdiction under Section 144B by giving his objections to the draft order and that, therefore, now it was not open to the assessee to take this point regarding applicability of Section 144B relying upon Rai Bahadur Seth Teomal v.CIT [1959] 36 ITR 9 (SC), Udaipur Distillery Co. v. CIT [1973] 87 ITR 516 (Raj.) and Seth Kanhaiyalal v. CIT [1937] 5 ITR 739 (All.). The learned counsel for the assessee submitted and in our opinion rightly that this was a point regarding jurisdiction and there was no question of the assessee waiving his right to object to it. In our opinion, jurisdiction is a matter of law, and if it is taken away by a statute the result is that there is no jurisdiction and the assessee cannot be said to have waived his right to take an objection regarding the absence of jurisdiction. The decisions relied upon by the learned D.R.are regarding the place of assessment and have no application here.
4. That brings us to the main point as above. The learned D.R.submitted alternatively that this was only a procedural irregularity which could be cured relying upon M.P. State Mining Corporation v. CIT [1988] 170 ITR 459 (MP), National Textile Corporation (MP) Ltd. v. ITO [1985] 151 ITR 228 (MP) and Joseph Kuruvila v. CIT [1989] 179 ITR 139 (Ker.). According to him, since this was only procedural irregularity the draft assessment order should be taken as a final order relying upon H.H. Maharaja Raja Power Dewas v. CIT [1982] 138 ITR 518 (MP), Kimteev. CIT [1985] 151 ITR 73 (MP), Bal Erectors v. CIT [1989] 180 ITR625 (Pun). & Har.) and S. SewaSinghGill v. CIT [1962] 46 ITR 152 (Punj.). The learned counsel for the assessee placed strong reliance upon the Tribunal's decision in the case of Digvijay Woollen Mills Ltd. v. ITO where the earlier Special Bench decision in the case of Saraya Sugar Mills (P.) Ltd. v. ITO [1985] 13 ITD 163 (All.) has been followed. In the case of Digvijay Woollen Mills Ltd. (supra) the Tribunal found that not only was the power under Section 125A conferred on the IAC, but it was also exercised by him. It, therefore, held that Section 144B was not applicable. In the case of Saraya Sugar Mills (P.) Ltd. (supra) although the Special Bench has observed that once the concurrent jurisdiction is conferred on the LAC under Section 125A he was deemed to have exercised the power vested in him, the Tribunal has also noted that the LAC had in fact exercised the powers and performed the functions of the ITO in terms of Section 125A. Therefore, the observation by the Special Bench that the IAC must be deemed to have exercised the concurrent jurisdiction once it is conferred on him is purely obltter. At page 170 of the report the Special Bench has observed in this connection as follows :- In any event the discussion on the aspect of the matter appears to us to be of academic nature inasmuch as on going through the facts on record, we find that the IAC, Allahabad, had, as a matter of fact, exercised the powers and performed the function conferred on him under Section 125A.Thus, the Tribunal itself has regarded this point as academic and we are Justified in holding the observations to be obitter. Moreover, since the Tribunal in the case of Digvijay Woollen Mills Ltd. (supra) has considered the said Special Bench decision, it must be held that the present legal position is that Section 144B would be inapplicable only if the IAC in fact exercises the concurrent jurisdiction conferred on him under Section 125A. The head-note in the report of Digvijay Woollen Mills Ltd. (supra) states as follows :- Held, once order under Section 125A was passed giving the IAC concurrent Jurisdiction, the provisions of Section 144B of the Act would not be applicable in the instant case by virtue of Sub-section (7) of that section.
As shown above, the Tribunal has not held this and nowhere in the Tribunal's order is there any observation as above. Further, Sub-section (4) of Section 125A clearly speaks about the exercise of powers or performance of functions of an Income-tax Officer which clearly shows that the power must be exercised. Again, Section 144B(7) speaks about the Dy. Commissioner exercising the powers and not only that, it speaks about the exercise of powers in pursuance of an order under Section 125A. This clearly shows that the exercise of the powers is necessary and that this exercise of the powers is a separate act because it is in pursuance of the order under Section 125A. The learned counsel for the assessee has submitted that Section 125A(2) makes merely conferment of the powers because according to him, the word "exercise" means mere holding of the powers, ie., a mere capacity to exercise those powers. The assessee's contention would lead to a very unreasonable result. If Section 144B would become inapplicable merely because concurrent jurisdiction had been conferred on the IAC but not exercised by him then neither the power under Section 144B would be exercised nor the concurrent jurisdiction would be exercised. The case would then not get the benefit of consideration by higher authority which is the purpose both of Sections 125Aand 144B. The whole purpose of Section 144B(7) is to avoid a clash and overlapping of orders or exercise of functions by two separate authorities and that can happen only if actually the function is exercised and not merely by the conferment of powers to exercise them. We are unable to accept this contention for the above reasons. The assessee's counsel also relied upon two decisions of the Tribunal (a) Hansa Agencies (P.) Ltd. [1985] 18 TLR 997 (sic) and (fa) Smt Shampyari Angrish [1985] 19 TLR 737 (sic) but in both those cases the IAC had in fact exercised the powers conferred on him under Section 125A.5. The learned counsel for the assessee also submitted that the section could not be so interpreted as to either extend or reduce the period of limitation depending merely on the fancy and whim of the IAC to exercise the concurrent jurisdiction or not to exercise it. We do not find anything extraordinary in this position. It is the result of the reading of the sections and of the case law which has been considered above. The assessee knows that if the power is exercised there would be a certain period of limitation and if it is not exercised there would be another period of limitation. It is not as if he is taken by surprise. This position from the beginning is knowable and is indeed known to him. The argument put forward by the assessee's counsel does not improve the position of the assessee. If it is accepted it would mean that the period of limitation would depend upon the conferment of the power and not upon the exercise of that power. In both cases it would depend upon the decision by the relevant authorities either to confer that power or to exercise it, as the case may be. The degree of predictability or, as the learned counsel put it, the whim and fancy would in both cases remain the same. Further, Clause (iv) of Explanation 1 in section 153 speaks of exclusion of a certain period for the purpose of limitation, not that it gives a longer period of limitation as such. That is only the result. Exclusion of a certain period had to be made in order to make Section 144B workable.
Therefore, we hold that Section 144B was applicable and the assessment is not barred by limitation.
6. We have therefore, to deal with the other grounds. The first ground is that (a) the Commissioner erred in confirming the disallowance of payment of interest of Rs. 3,12,488 ie., Rs. 1,76,501 under Section 215 plus Rs. 65,340 and (b) the Commissioner erred in rejecting the contention of the assessee that the interest payments are allowable deduction either under Section 28, 36, 37 or 80vv of the Act. This ground is rejected in view of the following decisions :- Federal Bank Ltd. v. CIT [1989] 180 ITR37 (Ker.), CIT v. Kamani Metals & Alloys Ltd. [1990] 183 ITR 327 (Bom.), National Engg. Industries Ltd. v. CIT [1978] 113 ITR 252 (Cal.) and Bharat Robbins Ltd. v. IAC [1989] 31 ITD 505 (Ahd.).
The second ground is that the Commissioner (Appeals) in not considering the ground of appeal for interest payment of Rs. 3.600 to M/s. Kaushal Textiles. This grievance is correct. Therefore, for this purpose it is restored to Commissioner (Appeals). This ground is allowed for statistical purposes.
Claim/or machinery repairs, etc., Rs. 7,165 - The CIT (Appeals) erred in not considering this additional ground of appeal raised in writing on 28-8-1987 claiming these machinery repairs etc., which have been disallowed by ITO in assessment year 1982-83 as pertaining to this year.
The learned counsel for the assessee stated that this ground can be decided here because in the Commissioner's order for assessment year 1982-83 it has been stated as follows :- In the second ground of appeal, the appellant had claimed a total expense of Rs 16,050 which pertained to assessment years 1977-78 and 1981-82. Since the expenses pertained to the earlier years the same cannot be allowed this year.
He also invited our attention to the copies of the bills which have been filed trying to prove the actual expenditure. These copies are not fully legible and it is therefore, desirable that proper scrutiny be made. Therefore, of this point, the matter is restored to the Commissioner for deciding this ground. This is also allowed for statistical purposes.
8. In the result, the appeal is partly allowed for statistical purposes.