TMI Blog2004 (12) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... cts Limited (hereinafter referred to as "KPL") to the current account as aforesaid. Such debits by and large, were covered by the credits, except that some times the debits (excluding the opening balance brought forward for earlier year) exceeded the credits for the reason that timely credits (for the sums due to the assessee) were not allowed in the Current Account, owing to the accounting delays. Such debits, without considering corresponding credits and/or in isolation thereof, were treated as "loans and advances" within the meaning of section 2(22)(e) of the Act and, on that basis, debits aggregating to Rs. 11,10,797 were added to his income as "deemed dividend" in the original assessment order made on 31st March, 1992. 3. Similar to the current account in the KPL as aforesaid, the assessee had been having an account with another company of the same group namely Ekta Flavours (P.) Limited. The debits appearing in the assessee's account in the said company were also treated as the assessee's income under the head "deemed dividend" under section 2(22)(e) of the Act as per the assessment order dated 31-3-1992 and addition of Rs. 6,01,783 was made. 4. While making both the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 10,61,127) represented the debits on account of TDS, which were not in the nature of 'Loans and Advances'. ----------------------------------------------------------------------- (iv) 25-3-1996 The aforesaid second assessment order dated 31st March, 1995 was set aside with the direction "to compute the accumulated profits after the allowance of liabilities of Ekta Flavours (P.) Ltd. and M/s. Kothari Products Limited". ----------------------------------------------------------------------- (v) 19-2-1998 Assessment order passed for the third time after making similar additions (as appearing in the assessment order dated 31-3-1995), without complying with the directions contained in the appellate order dated 25-3-1996, listed at Serial No. iv) above. ----------------------------------------------------------------------- (vi) 25-1-1999 The assessment order mentioned at serial No. (v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of sales-tax liability are similar in nature to the arguments advanced regarding the liability on account of Excise Duty in the case of M/s. Ekta Flavours (P.) Ltd. However, in this case, the claim of liability seems to have been disallowed by the Department in the I.T. Asst. of the company on the ground that it is a contingent liability and not merely a disputed liability. Even while computing the break value of the shares of this company in the wealth tax cases of the family members of the group the claim for a deduction on account of this liability has not been allowed. These decisions appear to have been confirmed in appeal and the matter is stated to be pending before the Hon'ble ITAT, Allahabad. Therefore, in view of the fact that the issue stands decided against the appellant inasmuch as it has been held that the liability claimed cannot be allowed as a deduction, the question of allowing a deduction on account of the same against the accumulated profits of the company while considering the issue of deemed dividend under section 22(2)(e) does not arise. This issue is therefore, decided against the appellant and the order of the Assessing Officer treating the advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appears of assessment years 1988-89 and 1989-90 was furnished. It was shown therefrom that the liability had been held as allowable in view of the order of the ITAT. It was argued that in view of the fact that the liability had already been allowed, the accumulated profit should be computed after allowing the liability in question. The Assessing Officer is directed to compute the accumulated profit after the allowance of the above liability and is also directed to compute the accumulated profit on the each day of advance for the purposes of working out the deemed dividend. The order passed by the Assessing Officer is set aside to be completed de novo". 12. In the re-assessment order dated 19-2-1998, passed for the third time (purported to be in pursuance of the appellate order dated 25-3-1996), the Assessing Officer had committed a grave error of law, by repeating the addition as had been made by him earlier in the assessment order dated 31-3-1995 (passed for the 2nd time). In the appeal against the said assessment order dated 19-2-1998, the CIT(A) again corrected the Assessing Officer vide his order dated 25-1-1999 and set aside the order with the following specific directions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working out the quantum of "accumulated profit" was no longer res integra in the present case. In the assessment order dated 27th March, 2001 that has been passed for the 4th time, the Assessing Officer could not have examined the issue as to whether the liabilities in question were of admissible nature or not, in making re-computation of "accumulated profits". The illegality as had crept-in, in the assessment order dated 27th March, 2001, had permeated in the appellate order dated 4th January, 2002, (which is subject-matter of present appeal before us) also. He pleaded that on a correct appreciation of the scope of set aside proceedings, in the light of the decisions of the Hon'ble Jurisdictional High Court in the case of S.P. Kochhar and Cawnpore Chemical Works (P.) Ltd., the ld. CIT(A) should have deleted the following additions: (a) On account of aggregate of debits in the assessee's account with M/s. Ekta Flavours (P.) Ltd. Rs. 6,10,783 (b) On account of aggregate of debits in the assessee's account with M/s. KPL Rs. 11,10,797 In toto, on this ground alone both the additions as aforesaid, were in excess of his j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said debits pertained and referable to the pre-existing credits in the account of the appellant with KPL. As stated earlier, the nature of account was that of a current account wherein the sums due to the assessee were being credited and the debits were only against such credits. In this respect, a specific reference was made to a credit of Rs. 6,72,500 on 7-4-1988 and to a corresponding debit of the same amount on 17-4-1988. The factual background of the said transactions was that the assessee was having an FDR with the same banker with which KPL has been dealing. By mistake, the banker had allowed credit for the maturity value of the said FDR in the bank account of KPL which should have been credited in assessee's account. In turn, KPL in order to correct the mistake, transferred the credit to the account of the assessee on 7-4-1988 and in order to enable him to have his FDR renewed, a cheque was issued on 17-4-1988 to the debit of his current account. Such a debit against repayment of earlier credit, could not have been treated to be in the nature of "loans and advances" so as to apply the provisions of section 2(22)(e) to the same. In relation to other debits also, there were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,50,040 (Rs. 11,10,797 - Rs. 60,757). 20. On the other hand, the ld. CIT/Sr. DR, first of all submitted that in the set aside proceedings the Assessing Officer was required to make the assessment de novo and therefore, he was free to examine each and every aspect of the transactions that the assessee had entered into with KPL and M/s. Ekta Flavours (P.) Ltd. through his current accounts with them. No restrictions or fetters had been placed by the first appellate authority on the powers of the Assessing Officer in this regard. In the set aside proceedings, he was not required merely to perform the job of computing the "accumulated profit" through arithmetical process. He was duty bound, first of all to examine as to whether the companies had got "accumulated profits" or not and for this purpose, the Assessing Officer had rightly referred to the Balance Sheets of the two concerns. On such a reference, he found that there were huge accumulated profits in both the cases and the debits in the account of the assessee (in both the companies) were fully covered by the same. In fact, there was no occasion for him even to go into the merits of the assessee's claim that there was a huge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time-to-time (by virtue of statutory amendment in the new "Act" of 1961). The said section, now contains an inclusive definition. For the sake of further analysis the said section itself is reproduced hereunder: "(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits." If the said section is analyzed, the undisputed position that emerges is that payment made by a company (in which public are not substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing the liability in question. The Assessing Officer is directed to compute the accumulated profit after the allowance of the above liability and that is also directed to compute the accumulated profit on the each day of advance for the purposes of working out the deemed dividend. The order passed by the Assessing Officer is set aside to the computed de novo." This meant, in unambiguous terms, that the "accumulated profit" should be re-determined by adjusting the liability, as stood fastened on the two companies by way of sales tax liability and excise duty and as had already been held to be allowable in computing the value of shares as per Rule 1D of the Wealth-tax Rules. The said directions have not, in any manner, been superseded or altered by any superior authority. 25. In the subsequent order dated 19-2-1998, the position was almost the same. 26. From a sequence of various orders as have been referred to above, it is evident that in the set aside proceedings, the Assessing Officer had reviewed the orders of the ld. CIT(A) dated 25-3-1996 and 25-1-1999. In the order dated 25-3-1996, the ld. CIT(A) has recorded a categorical finding that the sales tax liability was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e powers in making any such fresh assessment as he had originally when making an assessment under section 143 and the ITO is competent to redo the assessment in accordance with law after taking into the account all matters and aspects that would be relevant in making the original assessment. It is open to the AAC to limit the scope of enquiry by the ITO to any specified aspect or issue. What thus comes out is that the powers of the AAC are wider than those of the Appellate Tribunal. The AAC while hearing an appeal under section 251 of the Act can examine all matters covered by the assessment order and correct the assessment in respect of all such matters even to the prejudice of the assessee. He may remand the case to the ITO for enquiring into the items which were not the subject-matter of appeal also. If he sets aside an assessment and remands the case to the ITO for making a fresh assessment, the powers of the ITO while making the fresh assessment are the same as if he were making an original assessment under section 143(3) of the Act. The AAC can, however, limit the powers of the ITO by giving suitable directions in regard to the scope of enquiry by the ITO." CIT v. Mahindr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akes its colour from the questions involved in the case in which it is rendered and for that reason it is not permissible to pick up a sentence from the judgment to give it a new shape or colour. It was a case where the Appellate Assistant Commissioner had, while setting aside the assessment, directed the Income-tax Officer to make a fresh assessment. The Income-tax Officer, therefore, made the fresh assessment, exercising his original jurisdiction and included income of the assessee from sources not considered in the original assessment. This judgment is, therefore, not an authority for the proposition that the Income-tax Officer could go beyond the appellate order. The Allahabad High Court in Cawnpore Chemicals Works (P.) Ltd. (No. 1) v. CIT [1992] 197 ITR 296 has considered this aspect of the matter and brought out the said distinction. Even this Court has in CIT v. S.K. Ulagammal Achi [1987] 166 ITR 210 explained this case by observing that "the decision cited by learned counsel is also not an authority for the position that while setting aside the entire order of the Income-tax Officer, the Appellate Assistant Commissioner cannot restrict the enquiry or the points to be consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet to arrive at the valuation of shares, by applying Rule 1D of Wealth-tax Rules. In the corresponding assessment year under the Wealth-tax case of this very assessee, our learned brothers have simply held vide their consolidated order dated 22-1-1999 in WTA Nos. 14 15/A11./1996 for the assessment years 1988-89 and 1989-90 in the case of Vikram Kothari that the issue needed to be re-examined by finding out upto date position of sales tax liability. Such an order cannot be said to have reversed the position. In any case, the orders passed by the CIT(A) dated 25-3-1996 and 25-1-1999 held the field and the directions contained therein, were to be followed necessarily by the Assessing Officer. The ld. CIT(A) while passing the order dated 7-1-2002 (which is subject-matter of appeal before us) was duty bound to correct the error that had been committed by the Assessing Officer in his order dated 27-3-2001 (passed for the fourth time) and should have accordingly held that there existed, no "accumulated profits" after set off sales tax liability in the case of KPL. In this view of the matter, the findings given by the ld. CIT(A) in his order dated 7-1-2002 are reversed and it is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of J.K. Synthetics v. O.S. Bajpai, ITO [1976] 105 ITR 864. 31. Therefore, the view taken by our learned brothers in the case of Shri Vikram Kothari in WT Appeal Nos. 14 and 15 where they have held that the issue related to valuation of shares (as held by the assessee and other members of the family in KPL) under Rule 1D of Wealth-tax Rules, should be decided after ascertaining the final position of the sales tax liability, does not come in the way for deciding the controversy in favour of the assessee; the fact being that the liability was real and even held to be of allowable nature, for computing the value of shares in earlier year. Accordingly, we are of the considered opinion firstly that the issue of deductibility of sales tax liability for the purposes of computation of "accumulated profit" stood already decided by the ld. CIT(A) in terms of their orders dated 25-3-1996 and 25-1-1999 in favour of the assessee and the Assessing Officer went beyond his jurisdiction in taking upon himself to decide the issue again as to whether the liability was ascertained or of contingent nature or whether the same was allowable as deduction or not; and secondly the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(6A)(e), can be deemed to be dividend and that too only to the extent that the company has at the date of the payment "accumulated profits" after deducting therefrom all items legitimately deductible therefrom." If the said test is applied in the present case, it will become clear that the ld. CIT(A) went wholly wrong in holding that the remaining sums aggregating Rs. 10,50,040 were in the nature of "loans and advances". From the discussions appearing in the appellate order itself, we find that the debit of Rs. 6,72,500 had appeared in the account of the assessee on 17-4-1988 against a specific credit of the same figure on 7-4-1988. As stated earlier the credit was allowed in the account of the assessee for the FDR (belonging to the assessee) as got encashed from the Bank on 7-4-1988. Subsequently, the said credit was squared up by issuing a cheque for the corresponding figure on 17-4-1988, to enable the assessee to take a renewed FDR, in lieu of earlier FDR. The said debit is not refundable/ repayable to the KPL. Rather the KPL itself owed a "debt" to the assessee to this extent (by virtue of collection of FDR belonging to the assessee) and by making payment to the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by the Revenue, as have been extracted by us in para 8 it is seen that the Revenue is aggrieved, firstly by the relief granted by the ld. CIT(A) in relation to the addition of Rs. 6,01,783 which is the aggregate of debits appearing in the assessee's account with M/s. Ekta Flavours Pvt. Ltd. which deciding the issue, the ld. CIT(A) has given his reasons in paras 11 and 12 of his order dated 7-1-2002 (which is the subject-matter of appeal before us). It has been clearly held there that the liability in question has been allowed in the income tax assessment of the "persons" concerned and such liability has even been held to be liable as a deduction in valuing the shares under Rule 1D of Wealth-tax Act. We find no infirmity in the said view as the same is even in conformity with the principle laid down by the Hon'ble Bombay High Court and later on affirmed by the Supreme Court in the case of P.K. Badiani. Moreover, keeping in view our finding that the issue of admissibility of said deduction stood decided in favour of the assessee, we further hold that in the assessment order dated 27-3-2001 (passed for the 4th time), the Assessing Officer acted wholly without jurisdiction, in rev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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