ORDER
1. The Income Tax Appellate Tribunal, Allahabad has referred the following questions of law under section 256(1) of the Income Tax Act, hereinafter referred to as the Act for opinion to this court :
1. The Income Tax Appellate Tribunal, Allahabad has referred the following questions of law under section 256(1) of the Income Tax Act, hereinafter referred to as the Act for opinion to this court :
"1. Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in setting aside the order of the Commissioner passed under section 263 of the Income Tax Act.
2. Whether on the facts and in the circumstances of the case the Tribunal was correct in holding that since the event of retrospective amendment made in the section 80J had occurred after the framing of the assessment on 13-2-1980, the Commissioner could not validly assume jurisdiction under section 263 of the Act?
2. Briefly stated the facts giving rise to the present Reference are as follows :
2. Briefly stated the facts giving rise to the present Reference are as follows :
The assessee is a firm and the assessment year is 1977-78, the relevant previous year ending on 31-3-1977. The original assessment was completed on 13-2-1980 on net loss of Rs. 1,16,473. The Commissioner, Lucknow was of the opinion that the Income Tax Officer had wrongly taken the borrowed capital for working out the capital employed in the business of the assessee. As such, he issued a notice under section 263(1) of the Act and after hearing the assessee firm set aside the assessment and directed the Income Tax Officer to recomputed the allowance under section 80J of the Act. The assessee preferred an appeal against the said order of the Commissioner, Lucknow. In disposing of this appeal, the Tribunal observed as follows:
......... the amendments in the relevant provision of the section were made by the Finance Act, 1980, which came into force from 21-8-1980. It is no doubt true that by the said Finance Act the retrospective amendment was made in the relevant provisions of the Act. However, since this event had occurred after the framing of the assessment on 13-2-1980, we fail to appreciate how this could be considered by the Commissioner with a view to assume jurisdiction under section 263 of the Act. The decision of the Honble Calcutta High Court in the case of Ganga Properties (supra) clearly supports the stand taken by the assessee in this regard."
As a result the Tribunal allowed the appeal and set aside the order of the Commissioner made under section 263 of the Act.
3. We have heard Sri Govind Krishna, learned counsel for the revenue. No body has put in appearance on behalf of the respondent assessee.
3. We have heard Sri Govind Krishna, learned counsel for the revenue. No body has put in appearance on behalf of the respondent assessee.
4. The learned counsel for the revenue submitted that as an amendment was made under section 80J of the Act by the Finance Act, 1980 which came into force from 21-8-1980, but was retrospective in operation, the order of the assessing authority ought to have excluded the borrowed capital for working out the capital employed in the business of the respondent and the assessment order was erroneous and also prejudicial to the interest of the revenue. He submitted that in view of the retrospective amendment it would be treated that for the assessment year in question, borrowed capital had to be excluded while working the capital employed in a business under section 80J of the Act and therefore the order passed by the Commissioner under section 263 was perfectly justified. It is not in dispute that after the retrospective amendment the provisions of the statute exclude the borrowed capital from being taken into consideration for working out capital employed under section 80J of the Act. As a result of retrospective amendment made in the aforesaid section the position under law would be that during the assessment year in question borrowed capital had to necessarily excluded and the same has not to be taken into consideration while working out the capital employed. The order is therefore erroneous and prejudicial to the interest of the revenue. Thus the Commissioner was justified in setting aside the order of the assessing authority in exercise of jurisdiction under section 263 of the Act.
4. The learned counsel for the revenue submitted that as an amendment was made under section 80J of the Act by the Finance Act, 1980 which came into force from 21-8-1980, but was retrospective in operation, the order of the assessing authority ought to have excluded the borrowed capital for working out the capital employed in the business of the respondent and the assessment order was erroneous and also prejudicial to the interest of the revenue. He submitted that in view of the retrospective amendment it would be treated that for the assessment year in question, borrowed capital had to be excluded while working the capital employed in a business under section 80J of the Act and therefore the order passed by the Commissioner under section 263 was perfectly justified. It is not in dispute that after the retrospective amendment the provisions of the statute exclude the borrowed capital from being taken into consideration for working out capital employed under section 80J of the Act. As a result of retrospective amendment made in the aforesaid section the position under law would be that during the assessment year in question borrowed capital had to necessarily excluded and the same has not to be taken into consideration while working out the capital employed. The order is therefore erroneous and prejudicial to the interest of the revenue. Thus the Commissioner was justified in setting aside the order of the assessing authority in exercise of jurisdiction under section 263 of the Act.
5. In view of the foregoing discussion we answer both the questions of law referred to us in the negative i.e., in favour of the revenue and against the assessee. There shall be no order as to costs.
5. In view of the foregoing discussion we answer both the questions of law referred to us in the negative i.e., in favour of the revenue and against the assessee. There shall be no order as to costs.