IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.8756 of 2003

M/S. Swaraj Engines Ltd. ...Appellant(s)

Versus

Assistant Commissioner of Income Tax,  Chandigarh & Anr.

                ...Respondent(s)

O R D E R

The  appellant-assessee  was  formed  as  a  joint  

venture between Kirloskar Group and the Government of  

the  State  of  Punjab.   It  claimed  deduction  under  

Section  80-I  of  the  Income  Tax  Act,  1961  for  the  

Assessment  Year  1990-91,  which,  according  to  the  

assessee,  is  the  initial  assessment  year.   The  

deduction was initially allowed by successive Assessing  

Officers for the initial Assessment Year 1990-91 and  

for six successive Assessment Years 1991-92 to 1996-97.  

For the Assessment Year 1997-98, the Assessing Officer  

allowed  the  deduction  under  Section  80-I  in  the  

assessment framed under Section 143(1)(a) of the 1961  

Act.  This deduction under Section 80-I was confirmed  

in  the  assessment  made  under  Section  143(3)  of  the  

Income Tax Act, 1961 for the Assessment Year 1997-98 in  

which  deduction  under  Section  80-I  was  taken  into  

account by the Assessing Officer.  However, a notice  

under  Section  154  was  issued  by  the  Department  

purporting  to  withdraw  Section  80-I  deduction  in  

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respect of the Assessment Year 1997-98.  This order  

under  Section  154  was  challenged  in  Appeal  by  the  

assessee.  The said Appeal was allowed in favour of the  

assessee by CIT(A) vide order dated 18th January, 2002.  

Soon  thereafter,  on  20th March,  2002,  the  Department  

issued notice under Section 148 for the Assessment Year  

1997-98 for the reason that in the Annual Report of the  

assessee for Financial year 1988-89, relevant to the  

Assessment Year 1989-90, assessee had indicated sales  

of  346  engines  manufactured  before  31st March,  1989.  

Taking into account the said particulars of sales, the  

notice  stated  that  the  manufacturing/production  of  

engines had allegedly started in the period, relevant  

to  the  Assessment  Year  1989-90,  and,  consequently,  

assessee was not entitled to the benefit under section  

80-I during the Assessment Year 1997-98 (with which we  

are concerned).  Needless to state that 80-I deduction  

is for a period of eight years, which, according to the  

Department, ended during the period, relevant to the  

Assessment Year 1996-97.

This initiation of the re-assessment proceedings  

was challenged by way of a Writ Petition before the  

Punjab and Haryana High Court, which stood dismissed  

giving  liberty  to  the  assessee  herein  to  raise  all  

objections, including the one relating to jurisdiction  

of the Assessing Officer to issue notice, before the  

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proper  forum.   The  impugned  judgment  has  been  

challenged in this Civil Appeal, which now has come for  

hearing before this Court.

During the pendency of this Civil Appeal, we are  

informed  that  against  the  order  of  the  Assessing  

Officer reopening the assessment, the assessee herein  

had preferred an Appeal to CIT(A).  By his order dated  

8th January, 2007 in Appeal No.65/P/03-04, the CIT(A)  

allowed deduction under Section 80-I for the Assessment  

Year 1997-98 on the ground that assembling of engine  

did  not  amount  to  manufacture  for  the  purposes  of  

claiming deduction under Section 80-I of the Income Tax  

Act, 1961.  Against this decision of CIT(A), we are  

informed that the Department has preferred Income Tax  

Appeal No.304/CHD/2007 before the Income Tax Appellate  

Tribunal, Chandigarh.  That Appeal is pending as of  

date.  We are informed that arguments stand concluded.  

However, it appears that the CIT(A) did not give the  

finding  on  the  validity  of  the  reopening  of  the  

assessment.   

In the above circumstances, we are of the view  

that ends of justice would be sub-served if we direct  

the Income Tax Appellate Tribunal, Chandigarh, to also  

examine this narrow issue regarding the validity of the  

notice dated 20th March, 2002 in the pending Appeal,  

bearing No.ITA 304/CHD/2007. [emphasis supplied]

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The interim orders passed by this Court during  

the pendency of this Civil Appeal will continue till  

the disposal of the pending Appeal by the Tribunal.

Civil Appeal stands disposed of accordingly.  No  

order as to costs.

                                      ..................J.                      (S.H. KAPADIA)

                                      ..................J.                      (SWATANTER KUMAR)

New Delhi, April 06, 2010.

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