U.T. SHAH, J.M. In this appeal, assessee is challenging order of CIT passed under s. 263 of Act. 2. assessee is assessed in status of AOP. asst. yr. is 1976- 77 and relevant previous year ended on 31st March, 1976. 3. Under agreement dt. 21st May, 1975, assessee sold its assets to Gujarat Electricity Board for consideration of Rs. 13 lakhs. relevant portion of said agreement reads as under: "This agreement of sale made at Baroda on Twenty First day of May one thousand nine hundred and seventy five between Kapadwanj Town Cooperative Electricity Association Ltd., co- operative association incorporated and registered under Indian Co-operative Society Act, and having its office at Sardar Baug, Kapadwanj hereinafter called "The Vendor" (which expression shall unless repugnant to context or meaning thereof mean and include said company and its successor or successors and assigns) of first part, and Gujarat Electricity Board, statutory corporate body constituted under s. 5 of Electricity (Supply) Act, 1948 having its head Office at Baroda in State of Gujarat hereinafter called 'The Purchaser" (which expression shall unless repugnant to context or meaning thereof mean and include said Gujarat Electricity Board and its successor or successors) of second part. Whereas initial period of licence granted to Vendor expired on 14th Oct., 1974 and whereas Purchaser served notice to Vendor in exercise of powers vested in it under s. 6 of Indian Electricity Act, 1910 requiring vendor to sell its undertaking to it on expiry of its initial period of licence, And Whereas Vendor agreed to hand over on midnight of 14th Oct., 1974 possession of its undertaking's assets as shown in attached schedule. Now this agreement witness and it is hereby agreed by and between parties as under: 1. Vendor shall sell, and Board shall purchase assets of Vendor on terms and conditions and at or for price as hereinafter stipulated all of these assets (hereinafter referred to for brevity sake as "the Work") considering of All plant and machinery of undertaking consisting of transformer association equipment, sub-station plant and LT and HT distribution system complete together with service connections, meters, allied equipments of undertaking as shown in joint inventory taken by representatives of Purchaser and Vendor. 2. Vendor is possessed of or otherwise well and sufficiently entitled to works as absolute owner thereof and hereby declares that Works are absolutely free from any encumbrance or charge whatsoever and further assures clear and absolute rights, title and interest in Works and hereby agrees to save purchaser free from any claim for any debt, liability of any character whatsoever in respect of Works and assures its absolute right to sell Works. 3. Vendor agrees that all debts, obligations and other liabilities of any character whatsoever including unpaid audit fees, municipal or State taxes till date of handing over shall be paid by Vendor and further over shall be paid by Vendor and further agrees that any tax on sale payable if any, shall be so paid by vendor. 4. Vendor further agrees and undertakes to transfer and hand over to Purchaser balance as on date of handing over assets of statutory contingencies reserve, development reserve and Tariff and Dividend Control Reserves, as per his accounts when assets are taken over by purchase and which Reserves shall be subject to adjustment as per decision of competent authority as provided in Electricity (Supply) Act, 1948 within three months of such decision. 5. sale price for works is mutually agreed to and shall be, as hereinafter stipulated and shall be payable as hereinafter provided: (i) (a) price of said plant, machinery and other equipments is agreed to and fixed at Rs. 3,25,447 which is also stipulated in valuation schedule attached hereto. (b) price of HT and LT distribution line, service connections, meters, etc. is agreed to and fixed at Rs. 99,74,553 which is also stipulated in valuation schedule attached hereto. (ii) aforesaid price shall be payable as under: (a) 90 per cent of amount arrived at after deduction from Rs. 13 lakhs sum corresponding to consumers, contribution and statutory reserves as per last Govt. Audit Report which is for financial year 1972-73 and after taking into account amount of Rs. 3,40,000 and Rs. 75,000 already paid as on account on taking over of possession of all assets as per joint inventory on day of vesting viz, 14th Oct., 1974. (b) 10 per cent of sale price plus interest as admissible under Indian Electricity (Gujarat) Amendment Act, 1974 after final Govt. Audit Report as on date of vesting i.e. upto 14th Oct., 1974 is received and Sale Receipt for assets purchased is passed : Provided that out of first instalments of aforesaid payments, liability in respect of any charge, mortgage or similar obligation on Vendor shall be first deducted and paid by Purchaser direct to persons holding such charge, mortgage or similar obligation and such payments shall be deemed t o be payments having been made to Vendor as sale price of Works taken over by Purchaser. Provided further that out of any of aforesaid payment, capital contribution of consumers shall be deducted. Provided also that Vendor shall obtain Govt. Audit Report upto date of taking over assets, falling which any of aforesaid payments will not be made to Vendor". 4. In its return of income, assessee had shown profits under s. 41(2) of Act, at Rs. 2,40,001 which was worked out as under: . . Rs. Price of Plant & Machinery. . 3,25,447 Price of HT/LT lines etc . 9,74,553 Less . 13,00,000 Consumers' contribution 204,648 . Contingency Reserve 21, 27 8 . Development reserve 44,463 . Regular payment deposit 84,795 . . . 3,55,184 . . 9,44,816 Less: W.D.V. of assets . 7,04,815 Profit under s. 41(2) . 2,40,001 5. In assessment originally framed on 5th Jan., 1979 under s. 143(3) of Act, ITO had accepted aforesaid profits worked out by assessee under s. 41(2) of Act. Thereafter, some time in 1980, CIT initiated proceedings under s. 263 o f Act, as he was of view that ITO ought to have considered entire amount of Rs. 13 lakhs for working out profits under s. 41(2) of Act, n d not Rs. 9,44,816 as worked out by assessee. He, therefore, issued notice on assessee to show cause why assessment framed by ITO should not be revised Vide its letter dt. 28th Nov., 1980, assessee resisted action of CIT and urged that proceedings initiated under s. 265 of Act, should be dropped. CIT after giving opportunity of being heard to assessee passed order under s. 263 of Act, on 11th Dec., 1980 as he was of view that in working out profits under s. 41(2) of Act, entire amount of Rs. 13 lakhs should have been considered. relevant portion of order of CIT is reproduced below: "8. If it was intention of parties that agreed price of assets should be Rs. 9,44,816 and not Rs. 13 lakhs there is no reason why agreement should not have specifically stated so. In this connection it is useful to examine relevant provision of Indian Electricity Act, 1948 for ascertaining circumstances in which assessee was required to pay sum of Rs. 3,55, 184 to purchaser, Sec. 47 of Electricity (Supply) Act, 1948 lays down that provisions of sixth Schedule shall be deemed to be incorporated in licence of every licence. Now Para III of Sixth Schedule provides for creation of reserve to be called "Contingencies Reserve". Para V(I) of Schedule provides that Contingencies Reserve shall be not drawn upon during currency of licence except to meet certain charges as State Government may approve. What is more important is that para V(2) provides that on purchase of undertaking, contingencies Reserve shall be handed over to purchaser and maintained as such Contingencies Reserve. Para VI(a) of Sixth Schedule provides for creation of reserve to be called "Development Reserve". It is further provided that Development Reserve shall be available only for investment in business of electricity supply of undertaking and that on purchase of undertaking, Development Reserve shall be handed over to purchaser and maintained as such development reserve. It is clear from Provisions of Sixth Schedule that balance in Contingencies Reserve and Development Reserves accounts were paid by assessee to purchaser in discharge of statutory obligation cast on it by Electricity Supply Act. These amounts, though designated as reserves, were in fact liabilities of assessee at time of transfer of asset by it to purchaser. It is clear, therefore, that what assessee had paid in so far balance in three accounts viz. Contingencies Reserve, Development Reserve and Regular Payment Deposit are concerned was on account of liabilities due by it. Since amounts transferred by assessee to purchaser were in discharge of its liabilities, they are not admissible as deduction in determining sale price of assets. 9. In so far as balance in Consumers Contribution Accounts is concerned, it requires to be examined whether balance in this account was reserve as contended by assessee or liability. While position in respect of Consumers Contribution Account requires to be ascertained, in so far as other three accounts are concerned it is seen that ITO erred in allowing deduction on account of balance in these three account for purpose of determining profit under s. 41(2). It must be held, therefore, that order of assessment passed by ITO is erroneous in so far as it is prejudicial to interest of revenue. assessment order, is therefore, set aside for making fresh assessment in accordance with law. In reassessment ITO should recompute profit under s. 41(2) in accordance with law and for this purpose ITO should examine, inter alia, whether balance in Consumers Contribution Account was reserve of assessee or liability." 6 . It is pertinent to note that against aforesaid order of CIT assessee had not preferred any appeal before Tribunal. 7. When ITO once again taken up assessment as per aforesaid directions of CIT it appears, IAC, vide his order under s. 144A of Act, dt. 15th May, 1982, issued certain directions to ITO even though he was aware that ITO was to frame assessment as per aforesaid of Act, IAC directed ITO to calculate profits under s. 41(2) of Act, at Rs. 2,88,852 as against Rs. 3,40,001 computed by him in assessment originally framed on 5th Jan., 1979. relevant portion of order of IAC reads as under: "On going through balance sheet assessee was asked to explain what is mode of transfer of entries from profit and loss account to balance sheet. He was asked to explain whether any of reserves have been claimed in previous assessment years as expenses debited to profit and loss account and then transferred to balance sheet. On such verification it is found that following reserves have been already been claimed by assessee in profit and loss account. details are as under Rs. 19,843 Claimed in P & L A/c. in asst. yr. 1970-71 Rs. 11,381 Claimed in P & L A/c. in asst. yr. 1971-72 Rs. 17,6 27 Claimed in P & L A/c in asst. yr. 1976-77 Rs. 48,851 .. I am satisfied that agreement is clear regarding consideration and therefore actual amount that should be considered would be Rs. 9,44,816 as added by Rs. 48,851 mentioned above. ITO is directed to verify whether any other amount has already been claimed in P & L account as per Income-tax records. Therefore on recalculating profit under s. 41(2) would be Rs. 2,88,852 and not Rs. 2,40,001 as originally computed by ITO in his order under s. 143(3) dt. 5th Jan., 1979". 8. On basis of aforesaid instructions of IAC, ITO once again framed assessment under s. 143(3) read with s. 144A of Act, on 9th July, 1982 wherein, he computed profits under s. 41(2) of Act' at Rs. 2,88,852 as against Rs. 2,4000.1 I computed by him in original assessment framed on 5th Jan., 1979.. 9. On going through aforesaid assessment order dt. 9th July, 1982, CIT was of view that said order passed by ITO was erroneous and prejudicial to interest of Revenue in as much as ITO had not carried out instructions of his predecessor in order passed under s. 263 of Act, on 11th Dec., 19980. CIT therefore, issued notice to assessee to show cause why order of ITO dt. 9th July, 1982 should not be revised. assessee once again registered action of CIT which CIT in his order under appeal overruled, in following manner: "It is clear from para 8 of order passed under s. 263 by CIT Gujarat-III, bad on 11th Dec., 1980 that it was specifically held by CIT that contingency reserve, Development Reserve, and regular payment of deposits were on account of liabilities and in view of this deduction of these amounts out of sale consideration was not permissible. It appears that assessee did not agitate against order of CIT passed under s. 263 on 11th Dec., 1980 in appeal. Therefore, findings of CIT in respect of non deductibility of these there items had become conclusive. So in fresh assessment there was no scope, either for IAC under s. 144A or for ITO to re-examine nature of balances in these three accounts. As IAC under s. 144A as well as ITO in assessment order, allowed deduction of these amounts from sale consideration in fresh assessment for which there was no jurisdiction, fresh order of ITO was erroneous and prejudicial to interest of revenue. It is held by Andhra Pradesh High Court in case of CIT vs. Bandare Sauyari Raju (1980) 19 CTR (AP) 146 : (1981) 1 27 ITR 453 (AP) then assessment can be set aside partially also. In view of this judicial pronouncement order under s. 263 passed on 11th Feb., 1980 was partially set aside and these 3 items had not be considered again in fresh assessment. As regards "Consumers Contribution", assessee is not in position to establish that same was reserve and not liability. Thus, this also being liability would not be deductible from sale consideration. I have already held that order of ITO was erroneous and prejudicial to interest of revenue as he had not taken correct sale price of Rs. 13 lacs for purposes of finding out profit under s. 41(2) of IT Act. ITO is, therefore, directed to take sale consideration at Rs. 13,00,000 as against Rs. 9,93,667 taken by him". Being aggrieved by order of CIT, assessee has come up in appeal before Tribunal. At outset, ld. counsel for assessee submitted that since ITO had framed assessment on 9th July, 1982 as per directions of IAC issued under s. 144A of Act, CIT had no power to revise said order of ITO. CIT could have taken action under s. 263 of Act, if he had initiated proceedings and passed order under said section after 1st Oct., 1984 in view of amendment made in said section by Taxation Laws (Amendment) Act, 1984.. Since in instant case CIT has passed his order on 6th July, 1984, same was clearly bad in law. For this purpose, he relied on orders of Tribunal in case of Vinodkumar Jaichand Shah vs. ITO (Fifth) (1986) 18 ITD (Bom) 220, Basudev Naneklal Khetan vs. ITO (1985) 21 TTJ 510 (Ahd) and V.V. A. Shanmugam vs. Second ITO (1980) 16 CTR (Trib) 39. Thereafter, he invited out attention to first order of CIT passed under s. 27 3 of Act on 11th Dec., 1980 and submitted that since he had set aside assessment order for making fresh assessment in accordance with law, IAC could have given instructions under assessment in accordance with law, IAC could have given instructions under s. 144A of Act. Therefore, according to ld. counsel for assessee CIT could not have passed order under appeal under s. 263 of Act. Finally, he submitted that since entire undertaking of assessee was sold to Gujarat Electricity Board, no profits under s. 41(2) of Act, could be worked out and included in total income of assessee. For this proposition, he relied on decision of Hon'ble Gujarat High Court in case of Artex Manufacturing Co. vs. CIT (1981) 21 CTR (Guj) 21 : (1981) 131 ITR 559 (Guj). 10. ld. representative for Department on other hand, strongly supported order of CIT made under. s 263 of Act. In this connection, he submitted that in view of decision of Tribunal (Special Bench) in case of East Coast Marine Poroducts (P). Ltd. vs. CIT (1985) 4 sot 295 (Hyd) more particularly, following observations: "Further, unlike under s. 125 or 125A or 144A where Legislature had specifically provided that orders of IAC shall be treated as order of ITO, similar stipulation has been made in s. 144B. orders of Tribunal referred to and relied on behalf of assessee loose their force. In this connection, he highlighted fact that directions under s. 144B of Act, could only be given by IAC on draft assessment order framed by ITO. However, under s. 144A of Act, IAC can issue directions to ITO even before framing assessment under s. 143(3) of Act. This aspect of matter, according to ld. representative for Department, Tribunal has not considered in its order relied on behalf of assessee. In any event, he submitted that if there is conflict between earlier order of CIT made under s. 263 of Act and that of decisions of IAC issued under s. 144A of Act, CIT being superior authority, his order should prevail. According to him, IAC being sub-ordinate authority could not have interfered with earlier order of CIT made under s. 263 of Act, as in said order, CIT had directed ITO to examine balance in Consumers Contribution Account only. As regards other three items viz., Contingency Reserve, Development Reserve and Regular Payment Deposits, CIT had clearly held that same were not deductible in determining sale price of assets. Against said order of CIT assessee had not preferred any appeal before Tribunal. Relying on decision in case of Gaurishanker Kedia vs. CIT (1963) 49 ITR 655 (Bom) he submitted that assessee should not be allowed to dispute earlier order of CIT on these three items. According to him, decision in case of Artex Manufacturing Co. (Supra) has no application to facts and circumstances obtaining in instant case, as in instant case, as per agreement of sale (reproduced above), Rs. 13 lakhs were paid to assessee specifically in respect of plant and machinery and L.T. and H.T. distribution lines etc. In reported decision, as per agreement, sale price of Rs. 11,50,400 was mentioned without further specifying as to how same has been computed. He, therefore, urged that we should uphold order of CIT under appeal. 11. learned counsel for assessee, in his reply, submitted that since first order of CIT made under s. 263 of Act, on 11th Dec., 1980 was capable of more than one interpretation, same was bad in law. He still maintained that on proper reading of first order of CIT, he had set aside assessment order in to directing ITO to make fresh assessment in accordance with law. 12. We have carefully considered rival submissions of parties as well as perused material already brought on record and we do not find any substance in stand taken on behalf of assessee. If we were to read first order of CIT assessment framed by ITO on 9th July, 1982 and second order of CIT under appeal, it would be very apparent that assessment framed by ITO on 9th July, 1982 was erroneous in so far as it was prejudicial to interest of Revenue. We have come to this conclusion as ITO has not carried out earlier order of CIT dt. 11th Dec., 1980 in manner he was supposed to carry out. In our view, since CIT, vide his dt. 11th Dec., 1980 had directed ITO to reframe assessment in particular manner, IAC being sub-ordinate authority to CIT had exceeded his power in issuing directions to ITO under s. 144A of Act. Apart from this, in view of aforesaid order of Tribunal in case of East Coast Marine Products (P) Ltd. (supra), we are of opinion that CIT could have taken action under s. 263 of Act, in manner he did even prior to amendment action under s. 263 of Act, in manner he did even prior to amendment made in said section with effect from 1st Oct., 1984. We entirely agree with stand taken on behalf of Revenue that in orders relied on behalf of assessee, Tribunal's attention was not drawn to vital difference between provisions of s. 144A and s. 144B of Act. It is pertinent to note that directions contemplates under s. 144A of Act, are those prior to framing of assessment draft or otherwise under s. 143(3) of Act. It is pertinent to note that under s. 144B of Act, IAC cannot issue directions to ITO to include or not to include certain income which ITO has not considered while framing draft assessment under s. 143(3) of Act. However, under s. 144A of Act, IAC has got wide powers to issue directions to ITO before latter frames assessment under s. 143(3) of Act. In this view of matter, we do not find any infirmity in order of CIT under appeal. In our opinion, decision in case of Artex Manufacturing Co. (Supra) is hardly of any use to assessee in view of glaring distinguishing features on facts and circumstances obtaining in instant case. From plain reading of agreement of sale reproduced above, it cannot be disputed that Rs. 13 lakhs were paid to assessee in respect of capital assets which were purchased by Gujarat Electricity Board. In other words, we are not prepared to accede to stand taken on behalf of assessee in this regard. Again, we do not agree with submissions made on behalf of assessee that earlier order of CIT made on 11th Dec., 1980 was capable of more than one interpretation. Paragraphs 8 and 9 of said order reproduced above leave no doubt in our mind that CIT had clearly held that assessee was not entitled to deduction from sale price, Contingency Reserve, Development Reserve and Regular Payment Deposits. said decision of CIT had been accepted by assessee in as much as no further appeal was preferred against first order of CIT. In this view of matter, it is too late in day to allow assessee to agitate any thing further on this aspect of matter. In paragraph 9 of said order of CIT, CIT has directed to make fresh assessment in accordance with law with following pertinent observations. "In re-assessment, ITO should recompute profit under s. 41(2) in accordance with law and for this purpose ITO should examine, inter alia, whether balance in Consumers Contribution Account was reserve of assessee or liability. (Emphasis, italicized in print, supplied) In this view of matter and for reasons stated above, we have no hesitation in upholding order of CIT under appeal. 13. In result, appeal is dismissed. *** KAPADWANJ TOWN COOPERATIVE ELECTRICITY ASSOCIATION LTD. v. INCOME TAX OFFICER