B.J. Divan, C.J.
1. In this case, at the instance of the revenue, the following question has been referred to us for our opinion :
'Whether, on the facts of and in the circumstances of the case, the Tribunal was right in law in holding that the Additional Commissioner of Income-tax was not competent to pass the order in question and accordingly cancelling the said order under section 263 ?'
2. The facts leading to this reference are as follows : The assessee is a public limited company. For the assessment year 1965-66, the original order of assessment was passed by the ITO on October 7, 1969. The total income which was considered for assessment was Rs. 1,58,18,442. This assessment was reopened under s. 147 and the order in reassessment proceeding was made on March 25, 1971, by the ITO. In the reassessment proceedings, besides the income originally assessed, an amount of Rs. 68,882 was added on account of deduction cess for the reasons discussed in the reassessment order made under s. 143(3) read with s. 147(b) of the I.T. Act, 1961. Subsequently, that is, on September 30, 1971, the Additional Commissioner issued a notice to the assessee to show cause why action under s. 263 should not be taken against the assessee with reference to the assessment year 1965-66 on the ground that with regard to the provision of the amount of Rs. 6,43,500, made by the assessee for the payment of interest on deferred payment of the purchase consideration of machinery or plant under an agreement with M/s. Bakubhai & Ambalal Ltd., London, as according to the Addl. Commissioner, the same was wrongly allowed by ITO in the original assessment as the payment was to a non-resident without deduction of tax at source under the provisions of s. 195 and, therefore, was not admissible under s. 40(a)(i). In the proceeding under s. 263, it was contended on behalf of the assessee that the Addl. Commissioner could not pass any order under s. 263 in view of the order passed by the ITO in reassessment proceedings. This and other contentions of the assessee were disallowed and the Addl. Commissioner held that the subject-matter of the proceeding under s. 263 was the ITO's original assessment order dated October 7, 1979, and not the subsequent reassessment order which was a supplemental assessment proceeding separate from the original assessment. In the appeal before the Tribunal, the Tribunal cancelled the order of the Addl. Commissioner on the ground that the order of the Additional Commissioner in effect and substance was revising the order in reassessment in this connection and that it was not competent for him to do so because of the specific provisions of s. 263(2)(a). In arriving at this conclusion the Tribunal found that the question of allowance of the provision for interest payable to Bakubhai & Ambalal Ltd. was the subject-matter of consideration in the original assessment order passed in this case on October 7, 1969, as also in the reassessment order under s. 147 passed on March 25, 1971, and the order of the Addl. Commissioner under s. 263 passed on October 4, 1971. The Tribunal held that the proceedings under s. 263 taken up by the Addl. Commissioner were in respect of identical items of interest payable to Bakubhai & Ambalal Ltd., which formed the subject-matter of reassessment proceedings under s. 147 even though the amount may not have been disallowed in such reassessment. In para. 2 of the order of the Tribunal in the appeal against the order of the Addl. Commissioner under s. 263 it was pointed out that in that reassessment proceedings the ITO had addressed a letter dated January 5, 1971, to the assessee and the first paragraph of the letter read as under :
'From a reference to your records it is seen that you had made a provision for payment of interest of Rs. 6,43,500 to Bakubhai & Ambalal Ltd., London, for the accounting year ending on 31st March, 1965. This provision for payment of interest was allowed as a deduction for assessment year 1965-66. While examining the books of 1966-67 it was found that you had not deducted tax on the remittance abroad. It is also seen that the Government has not approved the taking of the long-term loans from Bakubhai & Ambalal Ltd. for the purpose of exemption of interest. Under the circumstances the claim for allowance of the interest on the basis of your provision for interest is disallowable.'
3. At the end of para. 2 of that letter the ITO stated :
'I am also intending to add the interest payment to Bakubhai & Ambalal Ltd., while passing the order for the re-opened assessment year.'
4. It is thus clear that this item of Rs. 6,43,500 which was by way of a provision for payment of interest to Bakubhai & Ambalal Ltd. was processed by the ITO in the reassessment proceedings. The letter dated January 5, 1971, specifically referred to this item and in that letter the ITO informed the assessee that he intended to add the interest payment to Bakubhai & Ambalal Ltd. while passing the order after reopening the assessment. In the order dated March 25, 1971, which was passed by the ITO in reassessment proceedings, he did not in terms refer to the interest payment to Bakubhai & Ambalal Ltd. but he mentioned : 'Income as per original order including interest, securities and dividends - Rs. 1,58,18,442.' Thus, it is obvious that at the time of reassessment proceedings, the question of interest payment to Bakubhai & Ambalal Ltd. was processed by the ITO. Though there is no specific mention or discussion about this item in the ITO's order passed in reassessment proceedings, he must be deemed to have impliedly processed this particular item of expenditure which was claimed by way of a deduction by the assessee. In CIT v. Steel Cast Corporation : 107ITR683(Guj) , the question of express and implied decisions was considered by a Division Bench of this court. Applying the principle laid down in that decision it must be held that, in the instant case, the ITO had impliedly decided on the question of interest payment to Bakubhai & Ambalal Ltd. and apparently he had decided in the reassessment proceedings not to disturb the deduction which was granted in respect of this item at the time when the original order of assessment was passed. Under those circumstances, so far as the facts of this case before us are concerned, it must be held that in the reassessment proceedings the ITO had decided to allow deduction in respect of this item of Rs. 6,43,500 by way of interest payable to Bakubhai & Ambalal Ltd., London. Since that was so, the order in reassessment regarding that item must be said to have passed under s. 147. Section 263(1) of the I.T. Act provides that the Commissioner may call for and examine the record of any proceeding under the Act, and if he considers that any order passed therein by the ITO 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. Under sub-s. (2)(a) it has been provided that no order shall be made under sub-s. (1) to revise an order of reassessment made under s. 147. It is obvious, as the Tribunal has rightly pointed out that when the Addl. Commissioner's attention was drawn to the reassessment proceedings and what happened in the course of the reassessment proceedings, he should have taken note of the fact that the item of Rs. 6,43,500 formed part of the decision of the ITO in reassessment proceedings and since that is the only possible conclusion on the facts of this case, the Tribunal was right in coming to the conclusion that in view of the provisions of s. 263(2)(a), the Commissioner had no power to pass the order that he did regarding this item of Rs. 6,43,500.
5. Under these circumstances, the Tribunal was right in coming to the conclusion that it did and in holding that the Addl. Commissioner was not competent to pass the order in question and the Tribunal rightly cancelled the order passed under s. 263 of the I.T. Act. We, therefore, answer the question referred to us in the affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.