1. All these appeals by the assessee are directed against the order passed under Section 263 of IT Act, 1961.
2. We will first like to briefly state the relevant facts pertaining to the various years under consideration.
2.1 Original assessment for assessment year 1979-80 was made on 26-3-1981 (pg. 21 & 22 of P.B.) at a total income of Rs. 7,85,635.
While completing the said original assessment deduction under Section 35B amounting to Rs. 26,681 was allowed. The Assessing Officer also allowed deduction under Section 80J at the rate of 7.5 per cent of the capital employed to the extent of Rs. 64,465. The first order under Section 263 was made by the CIT on 24-12-1982. Shri A.S. Bhatia the learned Commissioner of Income-tax vide aforesaid order under Section 263 dated 24-12-1982 set aside the original assessment order on the particular point relating to grant of weighted deduction under Section 35B only. He gave a specific direction to the ITO to withdraw the weighted deduction of Rs. 26,681 as already allowed and consider the grant of such deduction as is admissible in respect of the claim then lodged before the Commissioner of Income-tax.
2.2 The Assessing Officer passed a fresh assessment order on 24-8-1984 to give effect to the said order under Section 263 passed by the CIT.In the fresh assessment order dated 24-8-1984, the Assessing Officer allowed weighted deduction in respect of expenses incurred in relation to export promotion of Rs. 61,592 to the tune of Rs. 82,123. Thus extra deduction given under Section 35B comes to Rs. 20,531. In the aforesaid second fresh assessment, the Assessing Officer once again allowed the amount of deduction under Section 80J at the same figure of Rs. 64,465.
The CIT thereafter once again issued a show-cause notice under Section 263 on 16-10-1986 in which it was, inter alia, stated that the deduction allowed under Section 80J has not been computed in accordance with the relevant provisions of law. The other items of the said show-cause notice related to grant of weighted deduction under Section 35B, which in the opinion of the CIT was granted in excess in respect of certain expenditure. After considering the reply submitted on behalf of the assessee, the CIT passed the order under Section 263 for the second time on 6-1-1987. Before the CIT it was, inter alia, contended that as the original order was passed on 26-3-1981 and the revised order was passed on 24-8-1984, the matter should be governed by the provisions of Section 263 as it existed before 1-10-1984. According to the relevant provisions as it existed prior to 1-10-1984, the proceedings under Section 263 became barred by limitation of time with reference to the first order passed on 26-3-1981 and even with reference to the second order of the ITO on 24-8-1984 i.e., two years from the date of the order passed by the Assessing Officer. Since the order under Section 263 has been made on 6-1-1987, the same is clearly barred by limitation of time. The assessee also objected before the CIT that on merits their submissions are same as were made in the proceedings under Section 263 for assessment year 1981-82. As regards grant of rated deduction under Section 35B in respect of printing and stationery expenditure, it was submitted that determination of 5096 of the expenditure as qualifying for grant of weighted deduction under Section 35B is justified.
2.3 The CIT, after considering the submissions made on behalf of the assessee came to the conclusion that the provisions of Section 263 was amended with effect from 1-10-1984. At the time when the said provision was amended, the proceedings under Section 263 with reference to the second order of the ITO dated 24-8-1984 was not already barred by limitation of time. Therefore, the benefit of extended time limit will be applicable and an order under Section 263 could be passed on or before 31 -3-1987 i.e., within two years from the end of the financial year in which the order was made by the ITO. The CIT further observed that the contention of the assessee that error in respect of deduction under Section 80J if any, which was sought to be revised was committed in the first assessment dated 26-3-1981 and therefore, the initiation of proceedings under Section 263 on 16-10-1986 is invalid. The CIT observed in relation to the said contention that although the first assessment order was set aside with reference to the deduction granted under Section 35B, but the fresh assessment order passed on 24-8-1984 must be viewed as such and should not be circumscribed as only for a consideration of the deduction admissible under Section 35B. He placed reliance on judgment reported in J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. CIT [1963] 47 ITR 906 (All.) and CIT v. Seth Manicklal Fomra [1975] 99 ITR 470 (Mad.). The CIT on the strength of these decisions came to the conclusion that in making the fresh assessment, the ITO is not restricted in any way, except, to the extent where some specific directions had been given by the higher authorities, the ITO is bound to carry out the specific directions, but the scope of fresh assessment is not restricted to those specific directions contained in order under Section 263. The fresh assessment completed on 24-8-1984 will therefore have to be taken as a fresh order in all respects and the proceedings to revise this order cannot be related to first assessment order dated 26-3-1981. As regards the merits, the CIT observed that the capital employed in the new industrial undertaking ought to have computed in accordance with he various clauses contained in Section 80J. A proper reading of those clauses clearly indicates that the assets of the new industrial undertaking, which may include some investments, the income from which is not taken into account in computing the profits of the business will have to be excluded and certain necessary adjustments with regard to deduction of liability will have to be made in accordance with the various clauses contained in Section 80J. As regards the point relating to weighted deduction under Section 35B, the CIT observed that part of the printing and stationery expenses qualifies for weighted deduction under Section 35B. However, the qualifying expenditure must be apportioned in the ratio of the export sales to total sales unless the assessee leads concrete evidence justifying a higher allocation of the printing and stationery attributable to export activities. He, thus, set aside the second assessment order dated 24-8-1984 by his order under Section 263 dated 6-1-1987. The present appeal for assessment year 1979-80 is directed against the said order of the CIT.3. The facts pertaining to assessment year 1980-81 are broadly similar.
The original assessment order was passed on 28-11-1981. The assessee submitted a petition before the CIT under Section 264 of IT Act, 1961.
The CIT passed an order under Section 264 on 18-4-1984. In this order, the CIT directed the ITO to entertain the assessee's claim for grant of weighted deduction under Section 35B and decide the same after ascertaining the necessary details. The order under Section 264 specifically related only to the assessee's claim for grant of weighted deduction under Section 35B. Pursuant to the said order, under Section 264, the ITO made a fresh assessment on 24-8-1984. In this fresh assessment, the ITO granted weighted deduction under Section 35B in respect of E.M.D. export of Rs. 9,924 to the tune of Rs. 13,232. It will however be worthwhile to mention that deduction under Section 80J allowed in the original assessment order dated 28-11-1981 as well as in the second assessment order dated 24-8-1984 was computed at the same figure of Rs. 1,09,316.
3.1 The CIT issued a show-cause notice under Section 263 on 16-10-1986 and passed an order under Section 263 on 8-1-1987. The CIT mainly relied on the order passed by him under Section 263 on 6-1-1987 for assessment year 1979-80. He observed that the ITO should compute the amount of capital employed in the new industrial undertaking for determining relief, if any, admissible under Section 80J in accordance with the findings and directions given by him in assessment year 1979-80. With regard to claim of weighted deduction under Section 35B in relation to printing and stationery expenditure, similar finding was given.
4. The original assessment for assessment year 1981-82 was made on 23-3-1984. The CIT passed order under Section 263 on 13-3-1986. The CIT set aside the assessment to be made de novo according to law. The order under Section 263, inter alia, contained discussions in relation to following items:- (a) The point relating to computation of capital employed and determination of deduction allowable under Section 80J. (b) The alleged incorrect grant of deduction in respect of Rs. 21,270 being the amount of land revenue consisting of legal fund tax and education cess etc. from the year 1971-72.
(c) The alleged incorrect grant of deduction in respect of interest expenditure of Rs. 24,828.
5. The original assessment order for assessment year 1982-83 was made on 15-11-1984. The CIT passed the order under Section 263 on 9-1-1987.
In this order, the CIT has set aside the original assessment to be made de novo in accordance with the specific in findings and directions given regarding the computation of capital of the new industrial undertaking for determining the relief, if any, admissible under Section 80J.5.1 The learned counsel for the assessee submitted that so far as proceedings under Section 263 for assessment year 1979-80 and 1980-81 are concerned, the order passed by the learned CIT is clearly barred by limitation of time. The provisions of Section 263 as it existed prior to 1 -10-1984 ought to have been taken into consideration for computing the period of limitation. The learned CIT has clearly erred in holding that the benefit of extended period of limitation as amended with effect from 1-10-1984 will govern the present proceedings and the orders passed under Section 263 are well within the time limit prescribed in Section 263. He invited our attention towards C.B.D.T.Circular No. 402, dated 1 -11 -1984 published in the statute. On the strength of the said Circular and on the basis of law, as it existed prior to 1-10-1984, he submitted that the order under Section 263 for these two years could be made only upto 24-8-1986 i.e. within a period of two years from the date of the relevant assessment order. The orders under Section 263 made in January 1987 for these years are clearly barred by limitation of time. He also placed reliance on judgment of Hon'ble Bombay High Court in CIT v. International Computers Indian Mfr.
Ltd. [1991] 187 ITR 580.
5.2 Shri D.A. Mehta, the learned counsel thereafter submitted that even on an alternative ground regarding the point of limitation, the appellant has a very firmer and strong case. The error which was sought to be reviewed or revised in the second innings of the proceedings under Section 263 originated in the original assessment orders made in the year 1981. It is clear from the original assessment orders as well as from the second assessment orders passed in both these years that deduction under Section 80J was allowed at the same figure in the original assessments made in the year 1981 and in the fresh assessments made once again in the month of August 1984. He, therefore, urged that the error if any existed in the original assessment order which could not be revised after a period of two years from the date of the original assessment order. He was however fair enough to state that the point relating to grant of weighted deduction under Section 35B may be perhaps treated as having originated from the fresh assessment order made in August 1984. But he submitted that since the claim for grant of weighted deduction under Section 35B was re-determined by the ITO in accordance with the directions given in the first order under Section 263/264 made for both the aforesaid years, the same cannot again be subjected to revision under Section 263.
5.3 The learned counsel placed reliance on the judgments reported in Karsandas Bhagwandas Patel v. G.V. Shah, ITO [1975] 98 ITR 255 (Guj.), Ahmedabad Samngpur Mills Co. Ltd. v. A.S. Manohar, ITO[1976] 102 ITR 712 (Guj.), Poonjabhai Vanmalidas v. WTO [1978] 114 ITR 38 (Guj.) and Digvijay Cement Co. Ltd. v. CIT [1994] 210 ITR 797 (Guj.) with a view to support his contention that the error, if any, relating to grant of deduction under Section 80J arose in the original assessment orders and the claim so allowed in the original assessment cannot be treated as covered by the doctrine of merger in the fresh assessment order. The order passed by the learned CIT (Appeals) under Section 263 for assessment years 1979-80 & 1980-81 is therefore clearly barred by limitation of time. On merits relating to the deduction under Section 80J, the learned counsel for the assessee submitted that the view taken by the CIT in the orders under Section 263 for all the years-under consideration "is based on a mere change of opinion. The ITO allowed deduction under Section 80J after scrutinizing the entire relevant details and the same cannot be regarded as erroneous and prejudicial to the interest of revenue. The learned counsel invited our attention towards the working of 80J deduction made by the assessee at the time of furnishing of the return as well as towards the computation of such deduction made in the assessment order. It appears that after completion of the original assessment certain letters were exchanged between the assessee and the department. The Assessing Officer perhaps proposed an action under Section 154 with regard to these items. The assessee objected to such proposed action under Section 154. By these letters exchanged after completion of the original assessment, the learned counsel wanted to impress upon us that all the relevant enquiries were duly made by the Assessing Officer.
5.4 The learned counsel thereafter submitted that the other two items of expenditure in respect of which order under Section 263 has been made for assessment year 1981-82 also cannot be regarded as deduction erroneously allowed to the assessee. The assessee claimed deduction for interest payable of Rs. 24,828 in assessment year 1981-82 on its borrowings. The same was allowed by the ITO. The CIT observed that the said deduction was allowed without making any enquiry as to whether and to what extent the amounts borrowed on interest had been utilised to make the advances free of interest. The learned counsel submitted that no such material existed on records to establish any nexus between the funds borrowed on interest with interest free debit balances lying against the erstwhile firm/outgoing partners, the business of which was taken over by the assessee-company. Similarly, with regard to payment of Rs. 29,699 paid on account of land revenue which arose in the accounting year relating to assessment year 1981-82, the learned counsel submitted that the assessee itself had capitalised Rs. 7,425 out of the said amount as pertaining to the period prior to incorporation. Only the balance amount of Rs. 21,270 was charged to P & L account and was allowed as deduction. The CIT observed that the assessee capitalised the aforesaid amount of land revenue tax only for the period from assessment years 1971-72 to 1973-74, but the basic facts as to when the asset in respect of which such land revenue tax was paid was acquired has also not been ascertained. The learned counsel submitted that the liability for payment of such arrears of tax arose during the year under consideration and therefore, the deduction already granted by the ITO cannot be treated as erroneous.
5.5 The learned counsel thus strongly supported the various grounds of appeal and urged that the orders under Section 263 for all the years under consideration should be cancelled.
5.6 The learned departmental representative submitted that the orders under Section 263 passed by the CIT for all the years under consideration are within time and the CIT had validly assumed jurisdiction under Section 263. As regards orders passed for assessment years 1979-80 & 1980-81, the learned departmental representative submitted that it is true that the original assessment for assessment year 1979-80 was set aside by the CIT, under Section 263 for the limited and specific purpose of considering the claim under Section 3 5B, and in the similar manner, the assessment for assessment year 1980-81 was set aside by the CIT, under Section 264 for the limited point of considering the assessee's claim under Section 35B in respect of certain new items of expenditure, for which no claim was made in the original assessment, but once the assessment has been set aside, the ITO was under an obligation in law to carry out those specific directions as well as he also ought to have rectified all other errors, if any, which existed in the original assessment order. Such view is clearly fortified by the two judgments referred in the order of the CIT under Section 263 for these two years, viz., decisions in the case of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. (supra) and Seth Manicklal Fomra (supra). By not doing that duty to find out other error relating to incorrect computation of deduction under Section 80J at the time of making the second assessment order, the second assessment order of the Assessing Officer becomes erroneous and prejudicial to the interest of revenue. He also, placed reliance on judgments in Flores Gunther v. ITO [1987] 22 ITD 504 (Hyd.), Karsandas Bhagwandas Patel's case (supra), CIT v. Vincentian Orissa Society [1992] 194 ITR 743 (Ori.) .
5.7 The learned departmental representative further submitted that the amendment in Section 263 made with effect from 1-10-1984 is a machinery provision which deals with the procedural law and it would be clearly applicable to all the pending proceedings. According to the amended provisions the order under Section 263 could be validly made for assessment years 1979-80 & 1980-81 on or before 31-3-1987. Therefore, the orders under Section 263 made in the month of January 1987 for these two years are perfectly within the period of limitation.
5.8 The learned departmental representative further submitted that so far as the order under Section 263 for assessment years 1981-82 and 1982-83 are concerned, they have been made apparently within the time limit and there is no dispute about the limitation for these two years.
On merits of the point involved in the orders under Section 263 for all these years, the learned departmental representative submitted that the deduction under Section 80J was allowed without understanding the true meaning, interpretation, and scope of the relevant provisions contained in Section 80J. The Assessing Officer has not at all considered the effect of the inclusion of various sums due from erstwhile firms on which no interest was charged and which were included in the asset side of the balance sheet. The amount of capital employed is required to be computed as per the provisions contained in Section 80J(1A). The working of capital employed has to be strictly made in accordance with the various sub-clauses of the aforesaid sections which has not been done by the ITO. The ITO has not even applied his mind in relation to computation of capital employed in accordance with these provisions.
The order of the Assessing Officer is therefore clearly erroneous and prejudicial to the interest of revenue.
6. As regards claim for weighted deduction under Section 35B with regard to expenditure incurred on stationery and printing, he submitted that a higher proportion of expenses incurred for stationery and printing could not be treated as attributable to export promotion as has been adopted by the Assessing Officer and the same in the absence of any specific material and evidence ought to have been allowed only in the proportion of export sales on the total sales and such a mistake is clearly an error causing prejudice to the revenue. Likewise he submitted that the deduction granted in respect of interest expenditure and land revenue tax in assessment year 1981-82 is also incorrect, as the same were allowed without making any enquiry and without even ascertaining the basic facts. He, thus strongly supported the order of the learned CIT under Section 263 for all the years under consideration.
7. We have carefully considered the submissions made by the learned representative of the parties and have also given our thoughtful consideration to the contents of the orders passed under Section 263, the various other documents to which our attention was drawn and also the various decisions cited by the learned representatives.
7.1 We will first like to deal with the preliminary legal objection raised on behalf of the assessee particularly in relation to orders passed under Section 263 for assessment years 1979-80 and 1980-81. The facts mentioned hereinbefore clearly reveal that the claim under Section 80J for assessment years 1979-80 and 1980-81 were allowed by the ITO in the original assessments made on 26-3-1981 and 28-11-1981 for assessment years 1979-80 and 1980-81 respectively. It is an undisputed fact that in the first order under Section 263 for assessment year 1979-80, there was no discussion relating to any alleged incorrect grant of deduction under Section 80J. Likewise, in the order under Section 264 for assessment year 1980-81 passed on 18-4-1984, the point relating to grant of deduction under Section 80J was not the subject-matter of consideration by the CIT. Accordingly, the Assessing Officer in the second assessment made on 24-8-1984 for assessment years 1979-80 & 1980-81 did not disturb the amount of deduction already granted under Section 80J in the original assessments on both these years. The question which arises for our consideration is that even if it is assumed that the deduction under Section 80J was granted in the original assessment made in March 1981 without making enquiries or without taking into consideration the relevant provisions of law, could it be regarded as an error arising out of the second assessment order passed on 24-8-1984 for the purposes of conferring jurisdiction to the CIT, under Section 263; It will be pertinent to make a useful reference to the various decisions relied upon by the learned' counsel for the assessee in order to properly understand the scope of applicability of doctrine of merger. The Hon'ble Gujarat High Court in the case of Karsandas Bhagwandas Patel (supra) held that even after an appeal from an order of assessment is decided by the AAC, a mistake in that part of the assessment order which was not the subject-matter of review by the AAC and was left untouched by him, can be rectified by the ITO under Section 3 5 of the Indian IT Act, 1922, because the mistake would be his own mistake which he can always correct under Section 35(1).
7.2 The Hon'ble Gujarat High Court in the case of Ahmedabad Sarangpur Mills Co. Ltd. (supra) held that even if there could be two assessment orders, the period of limitation for rectifying the respective orders should be four years from the date of the original assessment order.
Merely because an assessment order is rectified, it cannot enlarge the period of limitation. It was, therefore, held that the effort of the ITO was to rectify the error which had crept in the original assessment order for assessment year 1961-62, which had been made on 26-12-1962.
The Hon'ble High Court held that the impugned rectification notice issued on 3-2-1968 on the strength of the second order under Section 154 dated 21-5-1965 was clearly time barred and without jurisdiction.
Similar view was expressed by the Hon'ble Gujarat High Court in the case of Poonjabhai Vanmalidas (supra). In a recent judgment in the case of Digvijay Cement Co. Ltd. (supra) the Hon'ble Gujarat High Court observed that the assessee had not claimed weighted deduction before the ITO on certain items of expenditure and no such claim was made before the AAC also. The AAC on his own also did not examine this point and he did not give any decision thereon. It was therefore held that the revision application submitted by the assessee under Section 264 claiming the deduction was maintainable.
7.3 From the principles of law laid down by the Hon'ble Gujarat High Court in the above referred cases it would be abundantly clear that the error, if any, relating to incorrect computation of deduction allowed under Section 80J crept up in the original assessment orders made in the month of March 1981 in assessment year 1979-80 and in the month of November 1981 for assessment year 1980-81. The point relating to grant of deduction under Section 80 J was not the subject-matter of proceedings initiated under Section 263 or under Section 264 for assessment years 1979-80 & 1980-81. This was also not the subject-matter of the first order passed by the CIT under Section 263 on 24-12-1982 for assessment year 1979-80 or in the order under Section 264 passed on 18-4-1984 for assessment year 1980-81. The CIT at his own while exercising the jurisdiction under Section 263 did not discover any such mistake relating to grant of deduction under Section 80J.Therefore, the point relating to grant of deduction under Section 80J cannot be treated as having merged in the second assessment orders passed in the month of August 1984 pursuant to the order of the CIT under Section 263/264. Therefore, the CIT has no jurisdiction to exercise his revisional powers under Section 263 in relation to an error which arose in the original assessment made in the year 1981 after expiry of a period of two years from the. date of the respective original assessment orders. If the view adopted by the learned CIT is approved, it may result in absurd interpretation in relation to the provision providing for the period of two years limitation in Section 263, as every error in the original assessment discovered after the fresh assessments are made, would go on enlarging the period of limitation of time to an indefinite period and the assessments would thus not get the status of its finality in spite of a clear provision of two years period of limit provided prior to amendment with effect from 1-10-1984. We are, therefore, of the considered opinion that the assumption of jurisdiction by the learned CIT under Section 263 so far as it relates to grant of deduction under Section 80J by me ITO in the original assessments are concerned is barred by limitation of time and is without jurisdiction.
7.4 Such a view is clearly fortified by an earlier decision of this Tribunal in the case of Hindustan Construction Co. v. ITO [1989] 30 ITD 171. It will be worthwhile to reproduce para 16 of the said decision which reads as follows : Before we part with these appeals, we would like to observe that action under Section 263 should be taken after a proper perusal of the records in respect of all the items which are sought to be encompassed within the said action. It would not be desirable to assume jurisdiction under Section 263 in respect of the same assessment year in respect of different items at different stages and at different points of time. This can never lend finality to an assessment order and puts an assessee to unnecessary harassment and protracted litigation. This situation could have been clearly avoided in the assessee's case in so far as assessment year 1978-79 was concerned.
7.5 However, with regard to the assumption of jurisdiction under Section 263 for assessment years 1979-80 & 1980-81 in respect of assessee's claim under Section 35B, we find that the error took place in the second order made on 24-8-1984 for both these years. It is an undisputed fact that the claim for grant of weighted deduction in respect of expenditure incurred for printing and stationery and the action of ITO's allowing 50 per cent such expenditure as qualifying for grant of weighted deduction under Section 35B for the first time came into existence at the time of making of the second order of the ITO dated 24-8-1984. The view taken by the CIT that such an expenditure should have been apportioned in the ratio of export sales to total sales unless the assessee lead concrete evidence justifying a higher allocation of the printing and stationery to the export activities qualifying under Section 35B appears to be a reasonable view. The CIT has not given any firm finding directing the ITO to grant deduction under Section 35B on the aforesaid expenditure in a particular manner but he has only directed the ITO to examine this point in the light of the directions and guidelines given by him. It is also equally true that such deduction under Section 35B was allowed by the ITO in the second assessment order without making necessary enquiries and without considering the relevant provisions of law and the case laws relating to the aforesaid point. The order passed by the ITO on 24-8-1984 for assessment years 1979-80 and 1980-81 to the extent of the point relating to grant of weighted deduction under Section 35B is clearly erroneous and prejudicial to the interest of revenue.
8. The point which then arises for our consideration is whether the revenue should be allowed to get the benefit of extended time as per the amended provisions of Section 263 which came into force with effect from 1-10-1984.
8.1 The learned counsel placed reliance on Circular No. 402 dated 1-11-1984 and the judgment of the Hon'ble High Court in International Computers Indian Mfr. Ltd. 's case (supra) in support of his contention that the limitation of time prescribed in the unamended provision should be applied. The said Circular clarifies that as a consequence of the amendment of Section 263 with effect from 1-10-1984, the limitation for passing an order under Section 263 will, in view of the general principles of interpretation of statute stand extended in cases where the period of limitation originally laid down in that section had not expired before 1-10-1984. However, with a view to avoid controversy and litigation in the matter, they advised the CITs that as far as possible orders under Section 263 should be made within two years of the date of the order sought to be revised in cases where the order sought to be revised was passed before 1-10-1984. The later part of the Circular is merely an advice given by the Board to the Officers as a measure of abundant caution and the same cannot be interpreted to mean that the Board gave a clarification of the aforesaid amendment in favour of the assessee.
8.2 The Judgment of Hon'ble Bombay High Court also does not in any manner support the assessee's contention, as the said judgment considered the effect of amendment of Section 263 made with retrospective effect by the Finance Act, 1989 and did not relate to the question of limitation of the period for passing an order under Section 8.3 It is a well-settled law that the law of limitation is a procedural law. It does not take away any right. Only in those cases where a right has already accrued to a party because the prescribed time of limitation has expired, that accrued right cannot be taken away by any subsequent amendment which enlarges the limitation of time. If the subsequent amendment, however, enlarges the time while the period of limitation prescribed under the old law has not expired, the subsequent law will govern the proceedings. We are, therefore, of the considered opinion that the law of limitation relating to proceedings of revision under Section 263 will be the law at the date when revisional proceedings are initiated. In the present case, the limitation of time according to the old law commenced from the date of second assessment order i.e. 24-8-1984 and the two years period of limitation would have expired on 24-8-1986. Well before the expiry of that limitation period the amended law came into force with effect from 1-10-1984 i.e., only after a period of one month or 7 days from the commencement of the limitation period. According to the amended law, the order under Section 263 could be made up to the expiry of two years from the end of the F.Y. in which the orders sought to be revised was passed. The limitation of time therefore in the present case for assessment years 1979-80& 1980-81 would expire on 31-3-1987. The orders passed under Section 263 in the month of January 1987 for both these years were therefore perfectly within the limitation of time.
8.4 On the merits relating to various items of disputed deductions allowed in the second assessments for assessment years 1979-80 and 1980-81 and in the original assessments for assessment years 1981-82 and 1982-83, we find that the Assessing Officer had allowed such deductions without making proper enquiries and without application of mind as to the applicability of the relevant provisions of law.
8.5 The computation of deduction allowable under Section 80J was required to be made as per the provisions of law contained in Section 80J(1A) which is reproduced hereunder :- For the purposes of this section, the capital employed in an industrial undertaking or the business of a hotel shall, except as otherwise expressly provided in this section, be computed in accordance with Clauses (II) to (IV) and the capital employed in a ship shall be computed in accordance with Clause (V) (II) The aggregate of the amounts representing the value of the assets as on the first day of the computation period of the undertaking or of the business of the hotel to which this section applies shall first be ascertained in the following manner :- (i) in the case of assets entitled to depreciation, their written down value; (ii) in the case of assets acquired by purchase and not entitled to depreciation, their actual cost to the assessee; (iii) in the case of assets acquired otherwise than by purchase and not entitled to depreciation; the value of the assets when they became assets of the business; (iv) in the case of assets, being debts due to the person carrying on the business, the nominal amount of those debts; (v) in the case of assets, being cash in hand or bank, the amount thereof, Explanation 1: In this clause 'actual cost' has the same meaning as in Clause (1) of Section 43.
Explanation 2 : In this clause and in Clause (III), 'computation period' means the period for which profits and gains of the industrial undertaking or business of the hotel are computed under Sections 28 to 43A. Explanation 3 : In this clause and in Clause (V), 'written down value' has the same meaning as in Clause (6) of Section 43.
Explanation 4: Where the cost of any asset has been satisfied otherwise than in cash, the then value of the consideration actually given for the asset shall be treated as the actual cost of the asset.
(III) From the aggregate of the amounts as ascertained under Clause (II) shall be deducted the aggregate of the amounts, as on the first day of the computation period, of borrowed moneys and debts owed by the assessee (including amounts due towards any liability in respect of tax).
(a) income-tax or super-tax (including advance tax) due under any provision of this Act; (b) wealth-tax due under any provision of the Wealth-tax Act, 1957 (27 of 1957); (c) gift-tax due under any provision of the Gift-tax Act, 1958 (18 of 1958); (d) super profits tax due under any provision of the Super Profits Tax Act, 1963 (14 of 1963); (e) surtax due under any provision of the Companies (Profits) Surtax Act, 1964 (7 of 1964); (ii) any liability in respect of tax shall be deemed to have become due- (a) in the case of advance tax due under any provision of this Act, on the date on which such advance tax is payable ; and (b) in the case of any other tax, on the first day of the period within which it is required to be paid.
(IV) The resultant sum as determined under Clause (III) shall be diminished by the value, as ascertained under Clause (II), of any investments the income from which is not taken into account in computing the profits of the business and any moneys not required for the purpose of the business, in so far as the aggregate of such investments or moneys exceed the amount of the borrowed moneys which under Clause (III) are required to be deducted in computing the capital.
8.6 The learned counsel submitted that the provisions of Sub-clause (IV) would be applicable only in a case where the aggregate of assets not relating to the industrial undertaking exceeds the amount of borrowed money. If such non-industrial assets are less than the borrowed money, the said provision would not be applicable. The revenue's interpretation of these provisions is that while computing the aggregate amount of values of the assets, as per Clause (II), the value of those assets which cannot be regarded as assets relating to the Industrial Undertaking will have to be excluded. The question relating to interpretation of these provisions raises an interesting question of law. However, we find that the Assessing Officer before allowing deduction under Section 80J in the original assessment for assessment years 1981-82 and 1982-83 did not make any such scrutiny and examination of the relevant facts in the light of the aforesaid provisions of law. This will render the original assessment orders made for assessment years 1981-82 and 1982-83 to be erroneous as well as prejudicial to the interest of revenue.
8.7 Likewise, the point relating to grant of deduction of interest and land revenue tax allowed in the original assessment for assessment year 1981-82 also required ascertainment of all the relevant facts which was not done by the Assessing Officer at the time of making the original assessment. The CIT has merely set aside the original assessment orders and directed the Assessing Officer to consider all the relevant facts and the provisions of law relating thereto and decide those points afresh. We are of the view that the CIT had rightly invoked the provisions of Section 263 for all the aforesaid 4 years except in relation to the point relating to grant of deduction under Section 80J for assessment years 1979-80 and 1980-81, as discussed herein before.
9. In the result, assessee's appeal for assessment years 1979-80 and 1980-81 are partly allowed and the appeals for assessment years 1981-82 and 1982-83 are dismissed.