CIT have no jurisdiction in respect of an issue considered by CIT (A)

IN THE ITAT MUMBAI BENCH ‘A’

K. Sera Sera Productions

versus

Commissioner of Income-tax

IT Appeal No. 3024 (Mum.) of 2012

[Assessment year 2006-07]

September 14, 2012

ORDER

B.R. Mittal, Judicial Member

The assessee has filed this appeal for the assessment year 2006-07 against the order of the Ld. CIT dated 29-03-2012 disputing the validity of the order passed u/s 263 of the Act.

2. The relevant facts are that assessee is engaged in the business of production, financing and distribution of cinematographic films.

3. There was a search action u/s 132 on 12th September, 2007 on the residential and business premises of the assessee and its group concern as well as director (s). Pursuant to the issue of notice u/s 153A of the Act, the assessee filed its return of income on 10th September, 2009 returning total income of Rs. 87,64,620/-. It is relevant to state that the assessee filed an appeal against the assessment order disputing the disallowances/additions made by the AO and the Ld. CIT(A) vide order dated 12th October, 2011 allowed the appeal of the assessee in part, a copy of the order of the Ld. CIT(A) dated 12-10-2011 is placed at pages 35 to 47 of the paper book. The Ld. CIT issued a show cause notice u/s 263 of the Act dated 09-03-2012, copy placed at page 19 of the paper book. We consider it prudent to state the contents of the said notice which are as under:

“Please refer to the assessment order passed under section 143(3) r.w.s. 153A of the Income-tax Act, 1961 dated 31/12/2009, assessing the income at Rs. 14,37,20,890/-.

On going through the details of the documents furnished during the course of assessment proceedings, it is noticed that the film “Darna Zaroori Hai” was released on 28.04.2006 as per details furnished by you during the course of assessment proceedings and also as per in formation available on internet. The cost of production of this film was Rs. 6,99,73,052/-. The entire cost of the production of the film has been claimed as expenses while computing the taxable income.

Your reference is invited to the provisions of Rule 9A of income-tax rules. In accordance with the rules, if the film is released in the last quarter of the previous year, then the expenses claimed on that particular year cannot exceed the receipts. If the expenses claimed on making a film exceed the revenue generated in that particular year, then the balance amount of the expenses is to be allowed in the subsequent year. As already mentioned, the picture “Darna Zaroori Hai” was not released in this year and accordingly, you are not entitled to any expenses of Rs. 6,99,73,052/-.

The Assessing Officer has allowed this expense while framing the assessment order. The order of the assessing officer is, therefore, erroneous and prejudicial to the interest of revenue as the deduction of Rs. 6,99,73,052/- on account of expenses on making the film “Darna Zaroori Hal” was allowed, whereas the same is not allowable.

You are required to explain why it should not be held that the order of I the Assessing Officer is erroneous and prejudicial to the interest of revenue. You are also requested to explain why the issue should not be restored back to the file of the Assessing Officer for fresh consideration.”

The assessee filed its submissions disputing the initiation of revisionary proceedings u/s 263 of the Act. It was contended, inter alia, that the assessee sold its share of 25% theatrical rights in the film “Darna Zaroori Hai” to M/s Varma Corporation Ltd. on 11-03-2006. Since the film is sold in the current year before its release, in accordance with the provisions of Rule 9A, the entire cost of the production of the film is to be allowed as expenses. The assessee also contended that during the course of assessment proceedings the AO examined the allowability of the expenses. He considered the amount of Rs. 24.84 crores debited to the profit & loss account on account of cost of various films and the AO disallowed Rs. 2,34,91,380/- after considering the various details filed by the assessee. It was also contended that the disallowance made by the AO was examined by the Ld. CIT(A) and he reduced the disallowance to Rs. 4,01,467/-. The AO, after proper enquiry and examination of the details as submitted by the assessee and after proper application of mind, allowed the claim of deduction of expenses in terms of Rule 9A of Rs. 24,84,37,124/-, hence it cannot be said that the AO had not applied his mind. The AO had taken a possible judicial view. Therefore, the assessment order passed by the AO is not erroneous.

4. The Ld. CIT did not accept the contention of the assessee and after discussing the provisions of sec. 263 of the Act has stated that the AO had not properly looked into the facts of the case. Part of the blame also lies on the assessee, which has misled the AO to various issues. In the profit & loss account the assessee has shown profit of Rs. 13,67,69,626/- whereas while computing the taxable income, the assessee had taken the profit at Rs. 2,67,69,626/-. Thus, the assessee has taken the profit less by an amount of Rs. 11 crores while computing its taxable income. The Ld. CIT has stated that as per the details of income, income from operations is Rs. 37,43,28,823/- and this income includes income of Rs. 11,25,00,000/- from the film “Darna Zaroori Hai”. Since the assessee had shown income from this film there is no question of disallowing the expenses under the provisions of Rule 9A. However, the assessee for the first time vide letter dated 5-12-2009 claimed before the AO that it has wrongly shown excess income of Rs. 11 crores under the head “income from operations in view of the film “Darna Zaroori Hai” and submitted that that amount was share application money received. The AO did not believe this submission of the assessee and treated the same as revenue receipt. The AO has taken the income from operations of film which is more than the cost of the production of the film, there was no question of disallowance of any expenses as per Rule 9A of I.T. Rules. The AO has not examined this issue and allowed the claim of the assessee after taking view on the issue. The Ld. CIT(A) vide his order dated 12th October, 2011 accepted the stand of the assessee that Rs. 11 crores which was debited as income from operations, was actually share application money received and accordingly, the addition made by the AO was deleted. The Ld. CIT has stated that Ld. CIT(A) never looked into the applicability of the provisions of Rule 9A in the case of the assessee as it was not part of grounds of appeal before the Ld. CIT(A). The Ld. CIT stated that the expenses claimed are more than the revenue earned and accordingly the expenses were not allowable in the current year. As per Rule 9A, expenses can be allowed only upto the extent of income earned if a part of release of film is less than 90 days in the current previous year. This makes the order of AO erroneous. The Ld. CIT has also stated that the assessee never claimed before the AO that it has sold the rights of exhibition over the film “Darna Zaroori Hai” on 11th March, 2006. Thus, assessee has hidden this crucial fact from the AO. The Ld. CIT has stated that AO has not properly examined how the expenses of the assessee incurred for the production of film “Darna Zaroori Hai” is allowable as deduction in the current year i.e. A.Y 2006-07. That the claim of the assessee that AO has taken one possible view is not acceptable. He has stated that assessment order is not only erroneous but is also prejudicial to the interests of the revenue because lawful revenue due to State could not be collected as a result of the order. The Ld. CIT has stated that the order passed by the AO u/s 143(3) r.w.s. 153A on 31-12-2009 is erroneous and prejudicial to the interests of the revenue. The same is set aside. The Ld. CIT has directed the AO to pass a fresh assessment order after enquiring and deciding the following issues :

  •  Whether the assessee had sold its share of theatrical rights in the film to M/s RGV for Rs. 25,00,000/- as is claimed by it. He should give specific finding whether this claim of the assessee is acceptable or not?

  •  If it is found that assessee has sold its share in film, the assessing officer will examine whether all revenue accrued to it from film especially amount to be received from M/s Sahara is taxable as revenue receipts in current year or not?

  •  He will examine as to whether any part of the cost of production of film is allowable in current year as film was released on commercial basis in next year?

He has stated that the AO will examine these issues and will pass a fresh assessment order after giving sufficient opportunity of being heard, if he is deciding the issue against the assessee. Hence the appeal by the assessee.

5. During the course of hearing Ld. A.R. submitted that the AO while making the assessment order asked the assessee vide notice u/s 142(1) dated 18-12-2009 to furnish details of cost of production allowable as per I.T. Rules, 9A of Rs. 27.19 crores. That the assessee vide letter dated 29-12-2009 furnished the details of claim of cost of production and the AO after examining the facts and applicability of provisions of law and proper application of mind accepted the deduction to the extent of Rs. 24,84,27,124/- and disallowed the claim to the extent of Rs. 2,34,91,380/-. To substantiate his above submission Ld. A.R. referred to para-10 of the assessment order dated 31-12-2009. Ld. A.R. submitted that against the said disallowance made by the AO, assessee filed an appeal before the CIT(A) and Ld. CIT(A) vide order dated 12-10-2011, copy placed at pages 35 to 47 of the paper book, confirmed the disallowance to the extent of Rs. 4,01,467/- out of disallowance of Rs. 2,34,91,380/- made by the AO and that too after seeking the remand report from the AO. Ld. A.R. submitted that the copy of the said remand report is also placed at pages 48 to 50 of the paper book. He submitted that the said order of the AO merged with the order of the Ld. CIT(A) much before the CIT issued notice u/s 263 of the Act dated 09-03-2012. The Ld. A.R. submitted that the ld. CIT(A) while considering the cost of production, examined Rule 9A of I.T. Rules and to substantiate his submissions he referred to paras 2.1 to 2.4 of the order of Ld. CIT(A). He submitted that the AO also considered Rule 9A in his remand report in considering the claim of deduction of cost of production. He submitted that the computation of claim of cost of production of feature film “Darna Zaroori Hai” was a subject matter of appeal before the Ld. CIT(A) and Ld. CIT(A) had given his finding on the claim of cost of production after due consideration of remand report submitted by the AO. Therefore, the revisionary jurisdiction of Ld. CIT u/s 263 of the Act cannot be invoked as the order of the AO was merged with the order of the Ld. CIT(A). To substantiate his submissions, the Ld. A.R. placed reliance on the decision of ITAT Mumbai Bench in the case of Sonal Garments v. Jt. CIT [2005] 95 ITD 363 and submitted that it was held that the Commissioner could not revise the assessment order u/s 263 in respect of an issue of computation of deduction u/s. 80HHC as the same was subject matter of appeal before the ld. CIT(A), who had also given certain finding on that respect. The Ld. A.R. also referred to the decision of the ITAT Mumbai Bench in the case of Marico Industries Ltd. v. Asstt. CIT [2009] 27 SOT 73 (URO), decision of Hon’ble Gujarat High Court in the case of CIT v. Nirma Chemicals Works (P.) Ltd. [2009] 309 ITR 67  and the decision of Hon’ble Bombay High Court in the case of CIT v. Saraf Bandhu (P.) Ltd. [1995] 216 ITR 833. Besides the above, Ld. A.R. also submitted that the Ld. CIT while passing the impugned order u/s 263 of the Act has also gone beyond the reasons stated in the show cause notice in respect of the claim of Rs. 25 lakhs and also gave direction to the AO to examine whether revenue accrued to the assessee from the film especially the amount received from M/s Sahara is taxable as revenue receipt in the year under consideration or not. He submitted that the Ld. CIT without stating the said issue in the show cause notice, cannot give such direction to the AO as it is beyond the reasons given in the show cause notice issued u/s 263 and to substantiate his submissions relied on the decision of the ITAT, Kolkata Bench in the case of Viper Estates & Investments (P.) Ltd. v. CIT, dated 29-12-2011 in I.T.A. No. 890/Kol/2010, the decision of ITAT Mumbai bench in the case of Geometric Software Solutions Co. Ltd. v. Asstt. CIT [2009] 32 SOT 428 (Mum.). The Ld. A.R. submitted that the impugned order of Ld. CIT is not valid and thus the same should be quashed.

6. On the other hand, Ld. DR justified the action of the ld. CIT to invoke jurisdiction of sec. 263 of the Act. She submitted that ld. CIT(A) had not considered applicability of Rule 9A as stated by ld. CIT in para 12 of the impugned order and, therefore it cannot be said that the order of the AO had already been merged with the order of ld. CIT(A). Ld. DR further submitted that the remand report submitted by the AO to the ld. CIT(A) was limited, and did not deal with the applicability of Rule 9A of the I.T. Rules in full. The Ld. DR further submitted that the assessee did not place before the AO the sale of rights in the film “Darna Zaroori Hai” at the time of assessment proceedings and only contended for the first time before the ld. CIT and, therefore, ld. CIT is also justified to give further direction to the AO while setting aside the assessment order and directing him to pass a fresh assessment order.

7. We have carefully considered the orders of the authorities below and the submissions of learned representatives of the parties. We have also considered the cases cited before us and the relevant pages of the paper book, along with the remand report, copy placed at pages 48 to 50 of the paper book, and the order of the ld. CIT(A) dated 12-10-2011, copy placed at pages 35 to 47 of the paper book. We consider it prudent to refer to the provisions of sec. 263 of the Act which read as under:

263. (1) The Commissioner may call for and examine the record of any [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

[Explanation.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,—

(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the Commissioner under this sub-section shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.]

8. From a reading of Section 263(1), it is clear that power of suo motu revision can be exercised by the Commissioner only if on examination of any proceedings under the I.T. Act, he considers that any order passed by the A.O. was “erroneous” in so far as it is prejudicial to the interests of the revenue. It is not an arbitrary or un-chattered power. It can be exercised only on fulfilment of the requirements laid down in Section 263(1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him, will be illegal and without jurisdiction. This opinion was expressed by the Hon’ble Bombay High Court in the ease of CIT v. Gabriel India Ltd. [1993] 203 ITR 108.

9. The expression “erroneous”, “erroneous assessment” and “erroneous judgment” have been defined in Black Law Dictionary, 6th Edition, Page 542. According to definition, “erroneous” means “involving error; deviating from the law”. “Erroneous assessment” refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature. Similarly, “erroneous judgment” means one rendered according to course and practice of court but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. From the aforesaid definitions, it is clear that an order cannot be termed as “erroneous” unless it is not in accordance with law. If an A.O. acting in accordance with law, makes certain assessment, the same cannot be branded as erroneous by the Ld. CIT simply because, according to him, the order should have been written more elaborately. The Hon’ble Bombay High Court in the case of Gabriel India Ltd. (supra) has held that Section 263 does not visualize a case of substitution of the judgment of the Commissioner for that of the A.O., who passed the order, unless the decision is held to be erroneous.

10. The words “prejudicial to the interests of the revenue” have not been defined, but they must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. Our views find support from the decisions Addl. CIT v. Mukur Corporation [1978] 111 ITR 312(Guj.), Gabriel India Ltd. (supra).

11. The phrase “prejudicial to the interests of revenue” has to be read in conjunction with an erroneous order passed by the A.O.. As has been held by Hon’ble apex court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, every loss of revenue as a consequence of an order of the A.O., cannot be treated as prejudicial to the interests of revenue. When an A.O. adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the A.O. has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the A.O. is unsustainable in law.

12. Thus, an assessment order can be revised u/s 263 of the Act and if only twin conditions of error in the order and prejudice caused to the revenue could exist. Though the revisional power conferred on the CIT vide section 263 is of wide amplitude to enable CIT to call for and examine the records of any proceedings under the Act and to empower him to make or cause to be made such an enquiry as he deems necessary in order to find out if any order passed by the AO is erroneous in so far as it is prejudicial to the interests of the revenue, but subject to the limitation that he must have some material (s) which would enable him to form a prima facie connection with the order passed by the officer is erroneous in so far as it is prejudicial to the interests of the revenue. He is required to exercise revisional powers within the bounds of the law with due respect to the principle of audi alteram paterm. The ld. CIT also cannot invoke his revisionary jurisdiction u/s 263 to correct each and every type of mistake or an error committed by the AO and it is only with an order which is erroneous, that sec. 263 can be invoked. Further, if the AO has made an enquiry during the course of assessment proceedings on the relevant issues and assessee has given its explanation and the AO allowed the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.

13. Considering the scope of sec. 263 of the Act in the light of the above discussion, we advert to the facts of the case.

14. We observe that the AO while making the assessment order dated 31-12-2009 in para-10 called for from the assessee the details of cost of production allowable as per I. T. Rules 9A vide notice u/s 142(1) dated 18-12-2009. The assessee furnished the details of cost of production of Rs. 27.19 crores and the AO allowed the amount to the extent the amount debited to the profit & loss account i.e. Rs. 24,84,37,124/- and disallowed the balance amount of Rs. 2,34,91,380/-. We observe that assessee filed an appeal against the said order of the AO and ld. CIT(A) called for remand report from the AO and after seeking comments of the assessee restricted the disallowance to Rs. 4,01,467/- vide paras 2.1 to 2.4 of his order dated 12-10-2011 (copy placed at pages 35 to 47 of the paper book). We consider it prudent to reproduce the said paras 2.1 to 2.4 of the ld. CIT(A)’s order which are as under:

2.1 The A.O. has noticed that the assessee has not filed the details of cost of production allowable as per I.T. Rule 9A. Thus he has allowed only the deduction to the extent of Rs. 24,84,37,124/- debited to the P. & LA/c. and the balance amount of Rs. 2,34,91.380/- was added back to the taxable income.

2.2 Before me, the appellant has submitted that the complete details were submitted before the A.O. However, due to oversight he has ignored and made the wrong addition.

2.3 I have considered the submissions of the appellant, order of the A.O. and remand report on this issue was called for from the A.O. A gist of the remand report was submitted by the A.O. is produced as under:

“The Ld CIT(A) had directed the undersigned to verify the assessee’s claim of deduction of qost of production under Rule 9A as assessee had contended that the details had been furnished on 29.12.2009. However verification of records show that though this item is shown as have been enclosed in a separate sheet (point no. 2 of the letter), no details were given by assessee during the course of assessment proceedings. As directed by the CIT(A) assessee has filed the letter on 22.02.2011 giving the following details:

Working of deduction allowable under Rule 9A.

Copies of Certificates issued by CBFC for release of Films.

The films are as under:

In support of the claim relating to date of release assessee has filed copies of Certificate issued by the CBFC (Central Board of Film Certification). The cost claim consists of opening stock and expenditure incurred during the year. The opening stock and expenses incurred for various films are as under:

Cost of the above total cost of each film assessee has created @ 10% reserve towards IPR and has debited the balance in the profit and loss account. However for IT purposes he has claimed the entire cost as per Rule 9A of IT Rules. Thus though assessee had added back in the computation of total income an amount of Rs. 24,84,37,124/- i.e. amount debited to profit and loss account after amortizing 10% towards Intellectual Property Rights (IPR) he has claimed deduction of total cost amounting to Rs. 27,19,28,504/- as against the total cost of Rs. 27,15,27,037/- which is worked out by them, thereby claiming excess deduction of Rs. 4,01,467/-.”

2.4 Copy of this remand report was also given to the assessee for his comment. The A.R. of the appellant has agreed with the remand report and as per this remand report the A.O. has pointed out that excess deduction of Rs. 4,01,467/-was claimed by the assessee. The A.R. of the appellant has not raised any objection on this figure. Therefore, the addition made by the A.O. is restricted to Rs. 4,01,467/- and the balance addition is deleted. Ground of appeal is partly allowed.

It is evident from the order of the ld. CIT(A) that the claim of cost of production of film was a subject matter of appeal before the ld. CIT(A) and ld. CIT(A) after consideration of remand report of the AO gave his finding. Therefore, this order of the AO, undisputedly had merged with the order of the ld. CIT(A) as far as the claim of cost of production of film is concerned. Clause (c) of Explanation to sec. 263(1) of the Act (as mentioned hereinabove) provides that ld. CIT cannot exercise his jurisdiction of the Act in respect of an order/issue which has been considered by the ld. CIT(A) in the appeal because the said order of the AO on being given a finding by the ld. CIT(A) merged with the order of the ld. CIT(A). Similar issue also came before the Hon’ble Delhi High Court in the case of CIT v. Ansal Properties and Ind. (P.) Ltd. [2009] 315 ITR 225, wherein it was held that in view of explanation (c) to sec. 263(1), it was not open to the Commissioner to have a relook into the matter u/s 263 of the I.T. Act.

15. During the course of hearing, Ld. DR submitted that ld. CIT(A) had not considered the applicability of Rule 9A and, therefore, clause (c) of Explanation to sec. 263(1) is not applicable. We, on consideration and perusal of the order of ld. CIT(A) read with the remand report before the AO submitted to the ld. CIT(A), do not find merit in her contention. The AO specifically stated in the remand report to make “working of deduction allowable u/r 9A” of I.T. Rules. Further, we also observe from para-10 of the assessment order that the AO called for the details from the assessee by issuing notice u/s 142(1) dated 18-12-2009 to furnish details of cost of production allowable as per Rule 9A of Rs. 27.19 crores. As mentioned hereinabove, the AO after considering the reply filed by the assessee vide letter dated 29-12-2009 as mentioned by the AO in para-10 of the assessment order, considered the claim of the assessee to the extent of Rs. 24,84,37,124/- and disallowed the balance amount of Rs. 2,34,91,380/-. Therefore, it is not factually correct that the AO at the time of making the assessment did not consider the applicability of Rule 9A vis-a-vis claim of the assessee on cost of production of film.

16. The Bombay High Court has also held in the case of Saraf Bandhu (P.) Ltd. (supra), that once the original order goes in appeal and the appeal is decided, the original order ceases to exist since it merged in the appellate order and hence the original order cannot be revised under the revisional jurisdiction of the Commissioner u/s 263 of the Act. It is relevant to state that the ld. CIT(A) passed the order on 12-10-2011 that is much before the notice u/s 263 dated 9-3-2012 was issued by the ld. CIT.

17. At the time of hearing Ld. DR also made a submission that if the issue has not been considered in entirety of applicability of Rule 9A, ld. CIT u/s 263 of the Act can also exercise his revisional jurisdiction. As mentioned hereinabove there is no dispute to the fact that AO as well as ld. CIT(A) considered the applicability of Rule 9A of I.T. Rules while allowing the cost of production of film as claimed by the assessee.

18. A similar issue came before the ITAT Mumbai Bench in the case of Sonal Garments (supra), wherein the income of the assessee was assessed u/s 143(3) after allowing the deduction u/s.80HHC. On appeal, the assessee agitated the computation of deduction u/s. 80HHC on the ground that AO erred in deducting certain amounts from export turnover. The CIT(A) allowed the appeal of the assessee and directed the AO to reduce FOB value from the export turnover. Thereafter, CIT passed an order u/s 263 holding that the profit for the purpose of sec. 80HHC should be computed after excluding export incentives and after allowing current years depreciation and as the assessee had incurred loss from the export business, deduction u/s. 80HHC was erroneously allowed by the AO in the assessment year which caused prejudice to the interests of the revenue. The ld. CIT, thus, directed the AO to recompute the income of the assessee by disallowing deduction u/s. 80HHC of the Act. On appeal before the Tribunal it was contended that the order of the AO had merged with the order of the ld. CIT(A) and, thus, power u/s 263 could not be exercised by the Commissioner. In that context, it was held by the Tribunal that the Commissioner (Appeals) had given some finding from the computation of deduction u/s. 80HHC. Therefore, the assessment order had merged with the order of the ld. CIT(A). In view of explanation (c) to sec. 263(1), such action of the Commissioner was not permissible. The Tribunal also rejected the contentions of the department that it was difficult to accept the submission of the department that the issue of depreciation being optional or the issue whether the assessee was at all entitled to deduction u/s. 80HHC or not, was not a subject matter of appeal filed by the assessee before the ld. CIT(A). It was held that a matter might have many aspects and the above mentioned two factors might be the aspect of the matter, but not the entire matter itself. The “matter”, in the instant case, was deduction u/s. 80HHC. Therefore, the assessment order so far as related to deduction u/s. 80HHC has merged with the order of the ld. CIT(A) and, therefore, exercise of power by the Commissioner u/s 263 was even not available under explanation (c) to sec. 263(1 and held that order u/s 263 passed by the ld. CIT was not a valid order in the eyes of law.

19. Similar issue also came before the Hon’ble Gujarat High Court in the case of Nirma Chemicals Works (P.) Ltd. (supra), wherein also it was held that the assessee claimed relief u/s 80I of the Act. AO worked out such claim after making necessary enquiries and partly reduced the claim made by the assessee. The assessee carried the matter in appeal before the CIT(A) who allowed the appeal on this count directing the AO to grant relief u/s 80I of the Act as claimed by the assessee without any disallowance. Subsequently, CIT u/s 263 of the Act disallowed the claim u/s 80I on the ground that the asset used by the assessee in the new industrial undertaking had formed part of old plant & machinery and the new industrial undertaking of the assessee was formed by reconstructing or restructuring or splitting up of the old business. In appeal before the Tribunal, the Tribunal rejected the contention of the assessee that the revisional order had been made without jurisdiction but allowed the appeal on merits. In further appeal before the Hon’ble High Court, it was held in para-19 thereof that when deduction u/s 80I of the Act was granted by the AO after disallowing a part of the claim which was carried in appeal before the CIT(A), the appellate authority was duty bound to examine whether the claim made by the assessee was in accordance with and subjection to the provisions of sec. 80I of the Act. The requirement of fulfillment of condition stipulated by sub-sec (2) of sec. 80I of the Act, is therefore, very much subject matter of the appeal in relation to the income from warehousing which had been disallowed by the AO. The Hon’ble High Court rejected the stand of the assessee that the assessment order was silent. As regards the allowability or otherwise of sec. 80I of the Act, it was inter alia, held that in view of clause (c) of explanation to sec. 263 of the Act, the order passed by the ld. CIT is not valid.

20. A similar view has also been taken by the ITAT Mumbai Bench in the case of Marico Industries Ltd. (supra), wherein it was held that CIT had no power to assume jurisdiction in respect of matter covered in appeal as the order of AO had merged with the order of CIT(A).

21. In view of the above discussions, we hold that the contention of the Ld. DR has no merit that CIT(A) had not considered the provisions of Rule 9A in entirety and, therefore, it cannot be said that the order of the AO had merged with the order of the ld. CIT(A). On the other hand, the decisions cited hereinabove and considering the fact that AO as well as ld. CIT(A) had considered the claim of the assessee for deduction u/r 9A of I.T. Rules. Hence the ld. CIT in his revisionary jurisdiction u/s 263 of the Act cannot exercise his jurisdiction in view of clause (c) of explanation to sec. 263(1) of the Act. Accordingly on that very ground the order of ld. CIT is liable to be quashed.

22. During the course of hearing, ld. A.R. also submitted that the CIT has considered two other points while giving directions to the AO to make fresh assessment order i.e. (a) whether assessee sold its shares of theatrical rights in the film for Rs. 25 lacs and to examine whether the claim of assessee is accepted or not, and (b) whether revenue accrued to the assessee received from M/s Sahara on sale of its share in film is taxable as revenue receipt in current year or not. Since these issues are outside the show cause notice issued by the ld. CIT u/s 263 of the Act, the said direction of the ld. CIT to the AO could not form the basis of revision of the assessment order. To substantiate his submission the ld. A.R. replaced reliance on the decision of ITAT Kolkata Bench in I.T.A. No. 890/K/10 dated 29-12-2011 in respect of Viper Associates & Investments (P.) Ltd. (supra), and the decision of the ITAT Mumbai Bench in the case of Geometric Software Solutions Co. Ltd. (supra). We agree with the above contention of the assessee that ld. CIT in his revisional proceedings cannot travel beyond reasons given by him for revision in show cause notice issued u/s 263 of the Act. Similar view has also been taken by the Hon’ble Delhi High Court in the case of CIT v. Contimeters Electricals (P.) Ltd. [2009] 317 ITR 249 , wherein it was held that Tribunal was right in holding that Commissioner did not even call for any explanation of the assessee and the issue of fulfillment of the condition u/s 80IA had not been part of the show cause notice, therefore, it could not form the basis of revision of the assessment order u/s 263 of the Act.

23. Be that as it may, we have held that the ld. CIT has not exercised his revisional jurisdiction u/s 263 of the Act in respect of allowability of claim of production of film in the context of Rule 9A of I.T. Rules validly as the assessment order on this issue had already been merged with the order of ld. CIT(A) dated 12-10-2011 much before issue of show cause notice dated 19-3-2012 to assume jurisdiction u/s 263 of the Act, therefore, we hold that the order of ld. CIT dated 29-3-2012 is liable to be vacated. Hence the appeal of the assessee is allowed by quashing the order of ld. CIT dated 29-3-2012 passed u/s 263 of the Act.

24. In the result, appeal is allowed.