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Showing 401 to 420 of 627 Records
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2007 (1) TMI 251
Issues Involved:
1. Increase in interest rate for workers' down payment.
2. Scheme of compromise/arrangement between the company and its stakeholders.
3. Approval and objections to the proposed scheme.
4. Modifications suggested by the workers' unions.
5. Financial solvency of the sponsor.
6. Comparative analysis of the original scheme and the modified scheme.
7. Jurisdiction and powers of the company court.
8. Final order and directions.
Detailed Analysis:
1. Increase in Interest Rate for Workers' Down Payment:
The judgment records that the petitioner agreed to increase the interest rate on the down payment to workers from 10% to 11% per annum. The Sabha and its sponsor also agreed to this increase, resulting in the down payment amounts being Rs. 14,34,71,743 and Rs. 14,36,37,497 respectively.
2. Scheme of Compromise/Arrangement Between the Company and its Stakeholders:
The company petition was filed for a scheme of compromise/arrangement between the company and its equity shareholders, secured creditors, unsecured creditors, statutory creditors, and workers. The scheme proposed by the petitioner included borrowing funds to pay outstanding dues to unsecured creditors, statutory creditors, and workmen, and staying the winding-up order.
3. Approval and Objections to the Proposed Scheme:
Meetings were held for various stakeholders to approve the scheme. While equity shareholders, secured creditors, unsecured creditors, and statutory creditors approved the scheme, the workers did not. The workers' union, Shramik Utkarsha Sabha, opposed the scheme and suggested modifications.
4. Modifications Suggested by the Workers' Unions:
The Sabha proposed modifications to the scheme, including paying the full value of the company's assets to the petitioner and/or Bali Properties and Investments (P.) Ltd., and providing an amount for workers and creditors. They also proposed starting a new textile unit to re-employ eligible workers. The modifications included a bank guarantee to ensure the performance of starting the textile unit.
5. Financial Solvency of the Sponsor:
Concerns were raised about the financial solvency of the sponsor, Prateek Apparels (P.) Ltd. The sponsor's net worth was negative, but the court noted that the sponsor's ability to raise funds could not be solely judged by the balance sheet. The sponsor provided affidavits promising to bring in the required amounts.
6. Comparative Analysis of the Original Scheme and the Modified Scheme:
The court provided a comparative table showing that the modified scheme offered by the Sabha was more beneficial to all parties compared to the petitioner's scheme. The modified scheme provided a higher down payment to workers, proposed the revival of the company's textile business, and ensured re-employment for eligible workers. It also offered a bank guarantee for starting the textile unit.
7. Jurisdiction and Powers of the Company Court:
The court discussed its jurisdiction under sections 391 and 392 of the Companies Act, 1956. It noted that the court's role is supervisory and not appellate. The court has the power to modify a scheme to ensure its proper working, even suo motu, without calling a meeting of all members or creditors. The modifications suggested by the Sabha were within the court's jurisdiction to sanction.
8. Final Order and Directions:
The court rejected the petitioner's scheme and sanctioned the modified scheme proposed by the Sabha with clarifications and further modifications. The sponsor was directed to deposit the amounts within specified timeframes and provide a bank guarantee. The Official Liquidator was directed to commence payment to workers after 30 days. The court provided liberty to the parties to apply for further orders in case of default or to seek an extension of time.
Order:
- The petitioner's scheme was rejected.
- The modified scheme by the Sabha was sanctioned with specific conditions.
- The sponsor was to deposit Rs. 1,16,83,738 and Rs. 14,36,37,497 within 15 days, and Rs. 52,07,50,000 within 60 days.
- A bank guarantee of Rs. 13,27,99,395 was to be provided within 90 days.
- The Official Liquidator was to commence payment to workers after 30 days.
- The court provided liberty to apply for further orders in case of default or to seek an extension of time.
Conclusion:
The judgment comprehensively addressed the issues of interest rate increase, approval and objections to the scheme, modifications suggested by the workers' unions, financial solvency of the sponsor, and the jurisdiction and powers of the company court. The court ultimately sanctioned the modified scheme proposed by the Sabha, ensuring better benefits for the workers and other stakeholders.
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2007 (1) TMI 250
Refund – Delay in submission of proof of export - Held that:- The learned Assistant Commissioner ought to have considered the refund applications in the light of the provisions of Rule 12 of the Central Excise Rules. Hence, the impugned order is quashed and set aside and the matter is remanded back to the Assistant Commissioner of Central Excise to consider the refund applications afresh in the light of Rule 12 of the Central Excise Rules - Assistant Commissioner of Central Excise shall decide the said applications in accordance with law, as expeditiously as possible preferably within a period of three months
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2007 (1) TMI 248
Drawback - Limitation - Application for advance licence filed but rejected twice. Application claiming brand rate of drawback filed but rejected on ground of delay. Non-filing of application for condonation of delay not fatal as representation submitted was sufficient. Parallel remedy could not be availed in view of para 70 of EXIM Policy. Non filing of application for condonation of delay beyond the control of respondent. Impugned order of single judge directing consideration of drawback applicable on merits, sustainable.
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2007 (1) TMI 246
Writ petition- writ petition filed against Tribunal order on pre-deposit-memo filed subsequently stating that appeals dismissed by Tribunal. Writ petitions challenging interim orders passed in main appeals. Writ petition need not be considered when appeal themselves dismissed. Interim and final order of Tribunal sustainable as appeals maintainable only on deposit of disputed amount. Appeals not maintainable if pre deposit partly waived by Tribunal exercising discretion and such part amount also not paid. Writ petition dismissed.
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2007 (1) TMI 243
Addition u/s 69 - Income From Undisclosed Sources - Valuation of the work-in-progress on cost basis - maintaining books of account - declaration made at the time of survey action - HELD THAT:- It is not clear from the assessment order that what was the sale price alleged to be different from the work-in-progress. It is also not clear that what was the basis of allegation of the additional value of work-in-progress on account of concealed investment or unrecorded expenses. Even when this issue was taken before the first appellate authority, the main reason of confirmation of the action of the AO was an order of the respected co-ordinate Bench in the case of Champion Constructions Co. vs. ITO [1983 (4) TMI 68 - ITAT BOMBAY-A], but on reading, we have found the difference in the facts and the issues. It is true that an assessee is liable for taxation of the profit in respect of a project which is near to completion or major part of the project is completed but the computation of profit should be on a correct basis.
The admitted position is that during the year under consideration, the assessee has not sold a single flat and this fact has not been denied by the Revenue, hence, it is not clear that on what basis the Revenue Department has arrived at a conclusion that there was a difference in the value of work-in-progress on account of sale price. This is also not the case of the Revenue that comparable sale instances were examined and on that basis it was suggested to the assessee to make a declaration on account of the value difference in work-in-progress. Merely on the basis of the possibility, as mentioned by the AO, in our opinion, an addition is not warranted.
The settled law is that an assessee appreciates in its books of account the value of his stock-in-trade artificially, it is held as a unilateral transaction and since there could not be any sale of the stock at that point of time, hence, the said artificial appreciation does not result into a profit. Further, the one thing that is essential is that there should be a definite method of valuation adopted which could be carried through from year to year. In case of any deviation, i.e., switchover from cost price to market price, an explanation and reasoning is essential to be recorded. There should be a cogent basis and neither the assessee nor the Revenue be allowed to arbitrarily change the method of accounting as regards the basis for stock valuation. The amount at which long-term contract work-in-progress is stated in periodic financial statements should be cost plus any attributable profit, less any foreseeable losses and progress payments received and receivable. If, however, anticipated losses on individual contracts exceed cost incurred to-date less progress payments received and receivable, such excesses should be shown separately as provisions.
Thus, we can safely arrive at a conclusion that in the instant case, since the assessee was regularly maintaining the books of account and valuing the work-in-progress on cost basis, then the Revenue had no reason to arbitrarily adopt the market price basis for the valuation of their said work-in-progress in a particular accounting period.
Ld AR has placed one more evidence on record i.e., an assessment for AY 2003-04 passed u/s 143(3), wherein the returned loss was accepted by the Revenue Department. For two reasons, he has cited this assessment order, first, there was recession in the real estate business in the subsequent years, hence, there was no likelihood expected hypothetical income in future, hence, erroneously suggested to assessee to make the alleged offer and, second, the accounting effect of enhanced work-in-progress further increases the loss, hence, no evasion of tax. We find force in this argument and express our view that the alleged declaration if at all made in the expectation of future profits, then the same was a premature step, so cannot be approved.
Thus, the main ground of the assessee pertaining confirmation of an addition is hereby allowed and rest of the grounds are decided pro tanto.
In the result, the appeal is allowed.
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2007 (1) TMI 242
Issues:
1. Allowance of set-off of depreciation carry forward under section 44AE.
2. Interpretation of provisions of section 72 and section 32(2) of the Income-tax Act.
3. Applicability of section 44AE in computing transport business income.
Analysis:
Issue 1:
The first issue revolves around the allowance of set-off of depreciation carry forward under section 44AE. The Revenue raised substantial grounds challenging the decision of the CIT(A) to allow the set-off. The Tribunal noted that the Assessing Officer disallowed the set-off based on section 44AE, which deems the set-off to have been given effect. The CIT(A) directed the Assessing Officer to allow the set-off, arguing that section 72, dealing with losses other than depreciation losses, did not affect the applicability of section 44AE. The Tribunal reversed the CIT(A)'s finding, confirming the Assessing Officer's action and allowing the Revenue's appeal.
Issue 2:
The second issue involves the interpretation of provisions under section 72 and section 32(2) of the Income-tax Act. The Tribunal analyzed the distinction between unabsorbed depreciation carry forward under section 32 and unabsorbed business loss under section 72. It clarified that unabsorbed depreciation falls under section 32 and not section 72. The Tribunal highlighted the statutory provisions regarding the treatment of unabsorbed depreciation and unabsorbed business loss, emphasizing that the two types of losses are set off in a specific manner beneficial to the assessee. The Tribunal concluded that the set-off of unabsorbed depreciation is governed by section 32 and not section 72.
Issue 3:
The final issue pertains to the applicability of section 44AE in computing transport business income. The Tribunal examined the provisions of section 44AE, which deem the deductions under specified sections to have already been given full effect. As unabsorbed depreciation falls under section 32(2), which is covered by the debarred claims of section 44AE, the assessee was not entitled to set-off unabsorbed depreciation while computing income under section 44AE. The Tribunal upheld the Revenue's argument, citing a Supreme Court decision to support its conclusion. Consequently, the Tribunal reversed the CIT(A)'s finding and confirmed the Assessing Officer's action, allowing the Revenue's appeal.
In conclusion, the Tribunal's judgment addressed the issues of set-off of depreciation carry forward, interpretation of relevant provisions, and the applicability of section 44AE in computing income, ultimately ruling in favor of the Revenue and reversing the CIT(A)'s decision.
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2007 (1) TMI 239
Issues Involved:
1. Validity of reopening the assessment u/s 147/148.
2. Determination of capital gains versus capital loss.
3. Consideration of Rs. 66 lakhs paid to outgoing partners.
4. Cost of construction and its certification.
5. Cost of acquisition of the property.
Summary:
1. Validity of Reopening the Assessment u/s 147/148:
The assessee objected to the reopening of the assessment, arguing non-compliance with statutory requirements and non-availability of the original return. The ld. CIT(A) upheld the reopening, stating that the conditions for applying sections 147 and 148 were satisfied. The reasons for reopening were duly recorded and communicated, and the confidential report of the DDIT was not required to be supplied to the assessee. The Tribunal agreed with the ld. CIT(A), finding that the Assessing Officer had sufficient material to believe that income had escaped assessment. The first ground of appeal was rejected.
2. Determination of Capital Gains versus Capital Loss:
The assessee challenged the determination of capital gains, claiming a capital loss. The Tribunal found that the theatre property was transferred to the Developer as per the agreement dated 8-8-1995, and the capital gain was liable to be assessed as on that date. The payment of Rs. 66 lakhs to the outgoing partners was considered an application of funds receivable by the assessee and not the cost of the property. The Tribunal upheld the determination of capital gains by the lower authorities and rejected the revised grounds of appeal.
3. Consideration of Rs. 66 Lakhs Paid to Outgoing Partners:
The assessee argued that Rs. 66 lakhs paid to the legal heirs of late Shri Tajdin Mavany should be considered the cost of the property. The Tribunal found that the payment was made in lieu of their shares of profit upon retirement from the firm and was not relevant to the cost of the property. The claim that it was part of a family arrangement was also rejected.
4. Cost of Construction and Its Certification:
The assessee contended that the cost of construction was overstated by the Developer. The Tribunal found that the cost of construction was rightly worked out by the Assessing Officer and confirmed by the ld. CIT(A). The Developer's certification of the cost at Rs. 1,55,00,000 was accepted, and the assessee failed to provide evidence to challenge this certification.
5. Cost of Acquisition of the Property:
The Tribunal found that the cost of acquisition taken by the lower authorities was not successfully challenged by the assessee. The payment of Rs. 66 lakhs to the outgoing partners was not considered the cost of acquisition, as the firm was constituted on 8-8-1995, and the cinema theatre became its asset.
Conclusion:
The appeal of the assessee was dismissed, and the decisions of the lower authorities were upheld.
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2007 (1) TMI 238
Denial for Registration u/s 12A - the activities of the Major Port Trusts come into purview of the term 'charitable purpose' as defined u/s 2(15)? - eligible for the exemption u/s 10(20)? - statutory autonomous body created under the Major Port Trusts Act, 1963 - delay in filing the application for registration u/s 12A - HELD THAT:- There is no doubt that the assessee, prior to insertion IT Explanation in section 10(20) with effect from 1-4-2003, was treated as a local body and accordingly, its income was exempt. In view of the statutory charge, the Legislature withdrew blanket exemption enjoyed by the local authorities like the assessee. Thus, we are of the opinion that the assessee cannot enjoy the status of the local authority. However, as per the advice by the Finance Ministry the assessee is entitled to apply for the registration under section 12A of the Act to claim the charitable institution but strictly on merits.
Needless to mention that Andhra Pradesh State Road Corporation, established under the Road Corporation Act, 1950, has already been treated as a charitable institution u/s 2(15). There are several other statutory organizations established by law which enjoy the status of charitable institution. We, therefore, do not find any force in the objection that Major Ports cannot be treated as charitable institutions, because these are created under a statute. Likewise, registration cannot be denied to the assessee on account of amendment under section 10(20) of the Act with effect from 1-4-2003. There is nothing in the amendment to show that the assessees are precluded due to any reason from making an alternative claim under section 11 of the Act.
The legislative intention appears to be to put restrictions on these bodies as are contained in sections 11 to 13 of the Act, relating to utilization of income of these bodies by way of investments, for public good. Sections 11 to 13 impose several restrictions and do not allow blanket exemption like section 10(20), where the assessee has only to establish that it is a local authority. No other conditions have to be followed after claiming exemption under the above sub-section.
In the present scenario of globalization of trade and industry, the transport of goods from one country to another, which is mostly by sea, has become essential. Therefore, development and maintenance of Ports are of 'general public utility' it is also not in dispute that the assessee-institution is genuinely engaged in the activities of development and maintenance of Mormugao Port. Therefore, the assessee duly fulfils both the conditions u/s 12AA which are necessary for the registration of the institution u/s 12A. The predominant objectives of MPT being charitable in nature, we are unable to agree with the view taken by the CIT, Panaji that the assessee is not eligible to be registered as an institution within the meaning of section 12A of the Act. Since all the requisite conditions are satisfied, we direct the CIT to register the Mormugao Port Trust as an institution u/s 12A from the first day of financial year in which the application was made i.e., from 1-4-2005.
Delay in filing the application for registration u/s 12A - HELD THAT:- Following the case of Ananda Marga Pracharaka Sangha v. CIT[1995 (2) TMI 7 - CALCUTTA HIGH COURT], it appears that the assessee is entitled for registration from the date of its creation but in the instant case, the assessee is not required to get registration since 1-4-1964 to 31-3-2002 as it was already enjoying the status of local authority and was exempted from the clutches of the Income-tax Act and it is not in dispute before us. we have already observed that the assessee is entitled for registration with effect from 1-4-2005 i.e., from first day of the financial year when the application was made for registration without any delay. For the intermediatory period of three years (1-4-2002 to 31-3-2005) the application was filed belated and the same was rejected by the CIT, as we were told.
Thus, we are of the view that the issue pertaining to the registration for the three years needs fresh adjudication. Therefore, in the interest of justice, we set aside the order of the CIT and restore the issue to his file for considering the belated registration application and registration for the intermediatory period of three years strictly on merits de novo but by providing reasonable opportunity to the assessee.
In the result, the appeal filed by the assessee is partly allowed as stated above and announced in the open court.
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2007 (1) TMI 234
Disallowance of deduction u/s 80-IB - manufacturing/production activities - Capsulation of mushroom powder - taxability of interest income - Payment towards excise duty liabilities u/s 43 - assessment completed u/s 143(3) - notice issued - HELD THAT:- In our opinion, all these activities do not bring in any new article or product into existence. The mushroom powder even after capsulation remains the same. There is no transformation of mushroom powder into new article. Before the capsulation, it was mushroom powder and even after the capsulation, it remains to be mushroom powder only. Once the capsule is removed, only mushroom powder emerges out of it. By filling this mushroom powder into gelatin capsules no new and distinct or separate product comes into existence. There is no change in the basic identity of the product and taste of the product.
It is a matter of fact that mushroom powder can be consumed in bulk form nakedly without being put into any enclosure or it can be consumed by putting into the gelatin capsule. Putting of the mushroom powder into the gelatin capsule is for the purpose of smoothening its marketability which is nothing but a processing which does not amount to manufacture or production of a thing or article so as to fulfil the conditions stipulated for availing the benefit u/s 80-IB of the Act.
For this purpose, we feel it pertinent to place reliance on the judgment of the Hon'ble Supreme Court in the case of Nilgiri Tea Co.[1959 (7) TMI 40 - BOMBAY HIGH COURT], it was held that when different brands of tea are mixed by the assessee for the purpose of producing of tea mixture of a different kind and quality, according to the formula evolved by them, there was plainly indubitably processing of different brands of tea because these brands of tea experienced as a result of mixing, qualitative change in that the tea mixture which came into existence was of different quality and flavour than the different brands of tea which went into the mixture. But the question whether the processing brings into existence any article or thing which may be said to be distinct from the article on which the process has been applied had been answered in negative. It was held that it was processing only.
Thus, we have no hesitation in coming to the conclusion that the expression 'manufacture' or 'producing' any thing or article u/s 80-IB(2)(iii) has been used in a generic sense and within its ambit it does not include any processing of goods, which does not bring out a new or commercially distinct commodity. Accordingly, putting the mushroom powder into the gelatin capsule does not amount to manufacture or production of any commercially distinct commodity. Therefore, we hold that the assessee is not entitled for deduction u/s 80-IB. This ground of the assessee is rejected.
Payment towards excise duty liabilities u/s 43 - This expenditure was never claimed as expenditure in the books of account and this was shown as advance in the books of account. The assessee made this claim before the Assessing Officer by way of a letter. Before us, the learned counsel for the assessee has not furnished any iota of evidence in support of the claim of the assessee. Admittedly this amount was shown as current assets being loans and advances. The assessee is not in a position to spell out the nature of liability. The assessee was making only verbal argument without stating the nature of expenditure, for which assessment year it relates and whether it was wholly and exclusively spent for business purpose and whether it was advance payment or payment towards liability for the current year. The assessee has not produced any order of the excise duty through which this liability is stated to have emerged. No judgment from any Court of law was also produced for compliance.
In our opinion, to avail of the deduction, the payments are required to be actually paid within the time stipulated in the proviso to section 43B of the Act. If the payments have not been made within the stipulated time, the deduction cannot be claimed at any time thereafter.
Thus, we decline to interfere with the order of the lower authorities and the order of the CIT(A) on this issue is confirmed.
In the result, the appeals filed by the assessee are dismissed.
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2007 (1) TMI 231
Issues:
1. Disallowance of exemption of income under s. 11(1)(a) and taxing the income at a specified amount.
2. Rejection of claim of accumulation of income under s. 11(2) for a period of ten years instead of five years.
3. Failure to appreciate corrected Form No. 10 submitted during assessment proceedings.
4. Disallowance of accumulation under s. 11(2) and exemption of income under s. 11(1) by the CIT(A).
5. Compliance with provisions of s. 11(2) regarding accumulation of funds and filing of Form No. 10.
Analysis:
Issue 1:
The appeal was against the order of the CIT(A) confirming the action of the AO in not allowing the exemption of income under s. 11(1)(a) and taxing the income at a specified amount. The assessee claimed the deduction of total income under s. 11 of the IT Act, 1961. The AO noted discrepancies in the accumulation of funds and set apart for a specific charitable purpose, leading to the disallowance of the claim of exemption.
Issue 2:
The main contention was the rejection of the claim of accumulation of income under s. 11(2) for a period of ten years instead of the prescribed five years. The AO observed that the society had resolved to accumulate funds for ten years for constructing a school building, contrary to the provisions of the Act. The CIT(A) upheld the AO's decision, emphasizing the requirement to set aside funds for five years and file Form No. 10 accordingly.
Issue 3:
The assessee argued that the period of ten years mentioned in Form No. 10 was an oversight and was rectified by a resolution passed before the completion of assessment. The Tribunal found that the lower authorities failed to appreciate the rectification made by the assessee and held that the claim should not have been disallowed based on a technical mistake.
Issue 4:
The CIT(A) concluded that the assessee did not comply with the provisions of s. 11 of the Act, specifically regarding the accumulation of funds for a specific period. The Tribunal disagreed, stating that the assessee had filed Form No. 10 before the completion of assessment and rectified the period of accumulation within the prescribed time frame.
Issue 5:
The Tribunal held that the Departmental authorities were not justified in rejecting the claim of the assessee based on technical grounds. It was emphasized that the provisions of s. 11(2) do not specify a time limit for filing Form No. 10 or investing the accumulated funds, making the time limits mentioned in the rules directory in nature. The Tribunal directed the AO to allow the benefit of accumulation as claimed by the assessee, ultimately allowing the appeal.
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2007 (1) TMI 229
Issues involved: Cross-appeals by assessee and Revenue regarding order passed by CIT(A) for block period of asst. yrs. 1990-91 to 1999-2000 and upto 29th July, 1999.
Assessee's Appeal:
The appeal was time-barred by 200 days, but delay condoned due to valid reasons. Additional ground raised regarding surcharge under s. 158BC, which was admitted. Tribunal held in favor of assessee based on Special Bench order, surcharge cannot be levied retrospectively. Other grounds not pressed by Authorized Representative. Addition of Rs. 80,000 on unexplained cash was disputed.
Regarding unexplained cash addition, AO made the addition as the claim of Rs. 80,000 from cash sales not recorded in books was not made during search. Tribunal found that short stock was found, and GP rate on sales made outside books was upheld by CIT(A), indicating sales outside books were proven. As sale proceeds would be available with assessee, the explanation that cash of Rs. 80,000 came from sale proceeds was accepted. Addition of Rs. 80,000 was deleted.
Revenue's Appeal:
First ground against direction to AO for addition only for profit element in unrecorded sales was dismissed. Tribunal held that profit element in unrecorded sales should be taxed, not entire sale proceeds. Second ground against direction to adopt local PWD rates and allow deduction for self-supervision was also dismissed. Tribunal upheld CIT(A)'s decision to apply PWD rates, scale down CPWD valuation by 20%, and allow 10% deduction for self-supervision.
In conclusion, Revenue's appeal was dismissed, and assessee's appeal was partly allowed.
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2007 (1) TMI 226
Issues Involved:
1. Acceptance of money-lending business in the status of HUF since 1981.
2. Allowance of opening capital of Rs. 47.50 lakhs on 1st April, 1997.
3. Credit of opening capital of Rs. 51.30 lakhs instead of Rs. 47.50 lakhs.
4. Deletion of addition on account of gold ornaments found in excess of the quantity prescribed by the CBDT.
Issue-Wise Detailed Analysis:
1. Acceptance of Money-Lending Business in the Status of HUF Since 1981:
The Revenue contended that the CIT(A) erred in accepting the money-lending business in the status of HUF since 1981, as it was not evident and was neither disclosed nor supported by evidence found during the search or assessment proceedings. The Tribunal upheld the CIT(A)'s decision, noting that the partition deeds of 1981 and 1995 found during the search supported the existence of HUF. The Tribunal dismissed the Revenue's argument, stating, "the learned CIT(A) was justified in directing the AO that the undisclosed income is required to be taxed in the hands of the HUF and not in the individual status."
2. Allowance of Opening Capital of Rs. 47.50 Lakhs on 1st April, 1997:
The Tribunal agreed with the CIT(A) in allowing the opening capital of Rs. 47.50 lakhs, as the family settlement deed dated 29th March, 1995, found during the search, clearly mentioned this amount to be divided among Shri Gopi Lal Mor and his three sons. The Tribunal emphasized, "Once the availability of cash to the tune of Rs. 47,50,000 is accepted, its utilization is also to be accepted as stated by the assessee unless it is proved that this amount was utilized elsewhere."
3. Credit of Opening Capital of Rs. 51.30 Lakhs Instead of Rs. 47.50 Lakhs:
The assessee argued that the CIT(A) should have allowed credit of Rs. 51.30 lakhs instead of Rs. 47.50 lakhs, considering the interest earned on the capital. The Tribunal dismissed this claim, stating, "there is absolutely no material on record to show that this money was lent by the assessee after 29th March, 1995." The Tribunal upheld the CIT(A)'s decision to allow credit of Rs. 47.50 lakhs.
4. Deletion of Addition on Account of Gold Ornaments Found in Excess of the Quantity Prescribed by the CBDT:
The Revenue contested the deletion of the addition for gold ornaments found in excess of the CBDT's prescribed quantity. The Tribunal referred to the CBDT Instruction dated 11th May, 1994, which provides guidelines for the non-seizure of gold jewellery up to certain limits. The Tribunal noted that the possession of gold jewellery by the family was reasonable and could not be held unexplained. The Tribunal stated, "When this instruction is applied to the facts of the case, we observe that the possession of gold jewellery of 733.930 gms by the family of four persons cannot be held to be unexplained."
Conclusion:
The Tribunal dismissed both the Revenue's appeals and the assessees' cross-objections on all grounds, upholding the CIT(A)'s decisions regarding the acceptance of HUF status for money-lending business, allowance of opening capital of Rs. 47.50 lakhs, and deletion of the addition for gold ornaments within the prescribed limits.
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2007 (1) TMI 225
Issues:
1. Rejection of books of account and application of section 145 of the Act.
2. Challenge against the addition on merits.
3. Disallowances of various expenses.
4. Double levy of tax on interest income.
5. Levy of interest under sections 234B, 234D, and 244A(3) of the Act.
Issue 1: Rejection of books of account and application of section 145 of the Act:
The appellant, a labour contractor, faced a steep fall in the GP rate for the assessment year 2003-04. The AO rejected the books of account due to various faults and invoked section 145 of the Act, making an addition of Rs. 11,30,975. The CIT(A) confirmed this addition. The Tribunal upheld the rejection of books and application of section 145, considering unvouched and unverifiable nature of expenses and the significant decrease in GP rate compared to the previous year. Citing the decision in CIT vs. British Paints India Ltd., the Tribunal supported the AO's actions.
Issue 2: Challenge against the addition on merits:
The appellant contested the rejection of books, application of section 145, and the addition on merits. The Tribunal analyzed the contentions of both parties regarding the decrease in GP rate, rise in diesel prices, and skilled labor requirements. Relying on a previous Tribunal order for a similar case, the Tribunal adopted a GP rate of 3% considering the unique circumstances of the appellant's business. The issue was partly allowed by the Tribunal.
Issue 3: Disallowances of various expenses:
The appellant challenged the disallowances of site, telephone, traveling, and salary expenses. The Tribunal found the disallowances excessive and restricted them to 1/6th under each head, considering the lack of other reasons provided by the AO. The Tribunal partly allowed this ground of appeal.
Issue 4: Double levy of tax on interest income:
Regarding the double taxation of interest income on income-tax refunds and fixed deposits, the Tribunal observed that the AO's actions would result in double taxation. The Tribunal agreed with the appellant's submissions and deleted the addition of Rs. 40,305. However, in the case of interest on fixed deposits, the Tribunal ruled that the interest should be taxed on an accrual basis but modified the rate adopted by the AO.
Issue 5: Levy of interest under sections 234B, 234D, and 244A(3) of the Act:
The appellant contested the levy of interest under various sections of the Act. The Tribunal acknowledged the mandatory nature of interest charges but directed for consequential relief to be allowed. The Tribunal decided this ground accordingly.
In conclusion, the Tribunal partly allowed the appeal of the assessee, addressing various issues related to the rejection of books, addition on merits, disallowances of expenses, double taxation of interest income, and levy of interest under specific sections of the Act.
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2007 (1) TMI 224
Method Of Accounting - trading addition - valuation of closing stock - HELD THAT:- Since the closing stock has to be valued at the end of the year, the natural corollary that follows is that the NRV is also be considered as at the end of the year and not the average selling price prevailing throughout the year. We, therefore, hold that the ld. CIT(A) was not justified in approving the rate of Rs. 17,473 as the basis for valuation. In our considered opinion, the rate of Rs. 17,500 PMT should be applied which represents NRV as at the end of the year. The Assessing Officer is directed to value the relevant closing stock at this rate and workout the sustainable addition. This ground is partly allowed.
Disallowance of Mill Lining expenses - HELD THAT:- The position, which emerges is that the nature of mill lining expenses has been established to be a recurring cost, which falls upon the assessee from time to time and hence cannot be treated a capital expenditure. Once this conclusion is reached, there is no justification for making disallowance for the expenditure incurred in this year notwithstanding the fact that in the books of account a different treatment has been given. If the expenditure is of revenue nature, the same would call for deduction in the year in which it is incurred. In our considered opinion, the ld. CIT(A) was justified in granting deduction for this sum.
Addition on account of 2/3rd disallowance out of ISO 9002 certification expenses - HELD THAT:- This certificate is basically issued and renewed from time to time to bring forth the fact that the systems and procedures of operations implemented in the organization are in accordance with the standards laid down. We note that by making payments for obtaining ISO 9002 certification, the fixed capital of the company has not enhanced in any manner. It rather created a positive image of the products of the assessee for the smooth conduct of the business. In our considered opinion, the ld. CIT(A) was justified in treating the entire amount as revenue in nature. This ground is, therefore, not allowed.
Deduction u/s 80-IB(3)(ii) - HELD THAT:- The assessee has admittedly claimed this deduction in the preceding years, which was allowed by the Assessing Officer. It is only in this year that the claim was refused. The well-settled principle of consistency has been consistently followed by all the courts of the country to hold that the view adopted by the Assessing Officer in a particular year should not be deviated from in the subsequent years unless there is some change in the legal or factual scenario justifying departure therefrom. In the case of CIT v. A.R.J. Security Printers [2003 (3) TMI 41 - DELHI HIGH COURT] when the department wanted to negative the assessee's claim, which was accepted in the past, the Hon'ble High Court held that; "having accepted in three assessment years that the assessee's business activity of printing lottery tickets fall within the ambit of section 80-I, the revenue cannot be allowed to turn around and contend that the deduction under the said section is not allowable in respect of the assessment years in question".
In the case of CWT v. M.K. Gupta[1990 (1) TMI 29 - DELHI HIGH COURT] the Tribunal applied the same value of property which was considered in the case of other co-owners. The Hon'ble High Court declined to interfere with the Tribunal's view by dismissing the revenue's appeal. In view of the foregoing legal position emanating from the judicial pronouncements, it is clear that the principle of consistency does not empower the Assessing Officer to deviate from the stand taken by him in the previous year unless factual or legal position justifies departure in the instant year. In our considered opinion, the ld. CIT(A) was not justified in refusing deduction u/s 80-IB. This ground is allowed.
In the result, the appeal of the revenue is partly allowed.
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2007 (1) TMI 219
Income From Undisclosed Sources - survey u/s 133A - retracted statements - HELD THAT:- I find substance in the finding of the learned CIT(A) that when the statement by which surrender was made was retracted and the father of the assessee, Shri Hari Ram, Jain was an existing income-tax assessee, in whose name the sum stated to have been invested by the assessee, in such circumstances, keeping in view the retraction of statements it was the duty of the AO to examine Shri Hari Ram Jain to make the addition, if any, in the proper hands. In my view, the learned CIT(A) has, thus, rightly deleted the additions in question. The Ground No. 1 is, thus, rejected.
Reopening proceedings u/s 147 - money for purchase of the plot - escaped assessment - addition u/s 69 - HELD THAT:- It is not the case of the Department in the present matter under consideration that during the proceedings u/s 147, the additions in question were connected with the issue for which reopening was initiated or the AO had brought on record any reason to show that the impugned additions were otherwise linked with the enquiry in regard to disclosure of alleged payment of on money. The learned CIT(A) has, thus, rightly deleted the additions in question made on account of trading addition, unestablished cash credit and low household withdrawals. The first appellate orders are, thus, upheld.
It is worthwhile to mention over here that while deciding the case in Vipan Khanna vs. CIT [2000 (7) TMI 2 - PUNJAB AND HARYANA HIGH COURT], has referred the decision of Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd.[1992 (9) TMI 1 - SUPREME COURT] and V. Jaganmohan Rao vs. CIT[1969 (7) TMI 4 - SUPREME COURT]. The Ground No. 2 is, thus, rejected.
In the result, appeals are dismissed.
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2007 (1) TMI 217
Income from undisclosed sources - Search And Seizure - charge levied on the basis of a dumb document - Order of the Ld CIT(A) is erroneous in law - presumption lying u/s 132(4A) - HELD THAT:- One cannot infer merely from the face of the document as to what is the total of those transactions and whether they are in rupees or in kilograms or something else. In the absence of such proper decoding and clarification of number/quantity involved, no charge of income-tax can be levied. If the figures in the documents are same these are the quantities then they have to be converted in terms of money. There has to be some basis for conversion. If it is money, then it has to be shown how much it is. The presumption that these figures are in lakhs is simply bald, wild and baseless. We have no option but to infer that the Assessing Officer has failed to discharge his duties. He drew inferences, made presumptions, relied on surmises and thus made unsustainable additions.
The discussion also leads us to infer that a charge on the basis of the document can be levied only when the document is a speaking one. The document should speak either out of itself or in the company of other material found on investigation and/or in the search. The speaking from the document should be loud, clear and unambiguous in respect of all the four components as described above. If it is not so, then the document is only a dumb document. No charge can be levied on the basis of a dumb document.
We also notice that the Assessing Officer could not establish that the assessee has charged any interest, if at all the impugned figures were advances. There is no material to show that the Assessing Officer has taxed these advances as wealth of the assessee. There is also no material to show that the assessee has taken any action to recover the money from the alleged debtors. It is not believable that the assessee or his legal heir would forget their money lying with the debtors. By one way or the other, he or his legal heir would try to recover the money. The Department has not done anything to find out that after the search in April, 1995. We are also unable to satisfy ourselves as to why the alleged transactions are considered in the assessment year 1989-90 when there is no date mentioned on the document. Once search took place in April, 1995, then undated paper could be presumed to be belonging to that period and hence the year of taxability would be the assessment year 1996-97. Thus, it is merely by surmises that the Assessing Officer has taxed it in the year 1989-90.
The crux is that a document found during the course of search must be a speaking one and without any second interpretation, must reflect all the details about the transactions of the assessee in the relevant assessment year. Any gap in the various components as mentioned in section 4 of the Income-tax Act must be filled up by the Assessing Officer through investigations and correlations with the other material found either during the course of the search or on investigation. As a result, we hold that document No. 7 is a non-speaking document.
Since the facts of the present case are similar to the case of Kantilal and Bros. v. Asst. CIT[1994 (11) TMI 194 - ITAT PUNE], we are of the view that no addition u/s 68 of the Act can be made on the basis of loose sheet being document No. 7 found during the course of the search.
Presumption lying u/s 132(4A) - In our considered view, such presumption is available to the proceedings u/s 132(5). In section 278D, a separate presumption has been provided for invoking in prosecution proceedings. As no such presumption is provided in the assessment proceedings, we infer that where the Legislature intended to provide such presumption it has been so provided in various Chapters. In the Chapter relating to search and seizure that presumption about books of account and documents is provided but it is limited to the summary proceedings about retention or release of the assets u/s 132(5). This cannot be extended to assessment proceedings. Our view is supported by the decision of the hon'ble Supreme Court in P.R. Metrani v. CIT [2006 (11) TMI 136 - SUPREME COURT].
Thus, the case of the Revenue is not assisted by section 132(4A) in any way. Even otherwise our considered view is that such presumption can only be raised when the documents is speaking one and it reflects complete transactions without two interpretations.
As a result, we hold that the impugned document No. 7 is a dumb document and no addition can be made on that basis. Therefore, we confirm the order of the ld CIT(A) and dismiss the appeal filed by the Revenue.
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2007 (1) TMI 216
Issues Involved:
1. Capital Contribution
2. Security Deposits
3. Sundry Liabilities
4. Commission Expenses
5. Vehicle Running/Rent Expenses and Breakage Loss
6. Unexplained Deposit with Excise Department
Detailed Analysis:
1. Capital Contribution:
Assessee's Appeal:
- The assessee contested the addition of Rs. 24.60 lakhs contributed by Shri Nandlal Pandey, arguing that the investment was made before the formation of the partnership and was reflected in his tax returns.
- The assessee also argued that the Rs. 50,000 deposited by Prakashchand Madan was made before the partnership deed execution.
Revenue's Appeal:
- The Revenue argued that the entire Rs. 65.10 lakhs should be added as the assessee failed to establish the nature and source of the investment.
Tribunal's Decision:
- The Tribunal found that the investments made before 31st March 2000 could not be added to the income for the assessment year 2001-02.
- The Tribunal deleted the addition of Rs. 24.60 lakhs for Shri Nandlal Pandey and Rs. 50,000 for Prakashchand Madan.
- The remaining additions were also deleted as the assessee provided sufficient documentary evidence proving the source of funds.
2. Security Deposits:
Revenue's Appeal:
- The Revenue argued that the assessee failed to prove the genuineness of security deposits amounting to Rs. 37.46 lakhs from 202 salesmen.
Tribunal's Decision:
- The Tribunal upheld the CIT(A)'s decision to delete the addition, noting that the assessee had obtained security deposits from salesmen, which was a common practice in the liquor business. The AO did not find substantial discrepancies in the statements of the depositors.
3. Sundry Liabilities:
Assessee's Appeal:
- The assessee contested the addition of Rs. 2 lakhs due to a discrepancy in the account of Glasgow Distilleries Ltd., arguing it was due to improper reconciliation.
Tribunal's Decision:
- The Tribunal remanded the issue to the AO to verify the reconciliation provided by the assessee. If the reconciliation was proper, no addition should be made.
4. Commission Expenses:
Revenue's Appeal:
- The Revenue argued that the assessee failed to produce evidence for commission expenses of Rs. 94,27,505.
Tribunal's Decision:
- The Tribunal upheld the CIT(A)'s decision to delete the addition, noting that the commission was actually a direct discount to customers, as confirmed by the AO's remand report.
5. Vehicle Running/Rent Expenses and Breakage Loss:
Revenue's Appeal:
- The Revenue contested the deletion of disallowances for vehicle expenses (Rs. 8,79,693) and breakage loss (Rs. 1,38,448).
Tribunal's Decision:
- The Tribunal upheld the CIT(A)'s decision to delete the disallowances, noting that the AO in the remand report accepted the vehicle expenses as genuine and the breakage loss as a normal business expense.
6. Unexplained Deposit with Excise Department:
Revenue's Appeal:
- The Revenue argued that the assessee failed to establish the source of Rs. 1.33 crores deposited with the District Excise Department.
Tribunal's Decision:
- The Tribunal upheld the CIT(A)'s decision to delete the addition, noting that the amount was already reflected in the balance sheet as an advance to the Excise Department and was funded from the assessee's capital, unsecured loans, and other liabilities already examined by the AO.
Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal, upholding the CIT(A)'s deletions of various additions made by the AO.
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2007 (1) TMI 215
Issues Involved:1. Whether discounting charges are to be treated as interest u/s 2(28A) and attract provisions of TDS u/s 194A. 2. Whether interest u/s 201(1A) should be charged from the date of deductibility of tax till the payment by the deductee. Summary:Issue 1: Treatment of Discounting Charges as Interest u/s 2(28A) and TDS u/s 194AIn the cross-appeals filed by the Revenue and the assessee, the primary issue was whether the discounting charges amounting to Rs. 45,96,349 and Rs. 49,40,717 should be treated as interest within the definition of s. 2(28A) and thereby attract the provisions of s. 194A of the IT Act, 1961. The AO concluded that these charges were in respect of debts incurred by the assessee and were covered within the definition of 'Interest' under s. 2(28A), thus attracting the provisions of s. 194A. The CIT(A) confirmed the AO's view, observing that even though the payment was debited under the head "discount charges," it was in the nature of interest under s. 2(28A). The CIT(A) relied on the Hon'ble Madras High Court's decision in Vishwapriya Financial Services & Securities Ltd. vs. CIT (2003) 179 CTR (Mad) 334. The Tribunal upheld the CIT(A)'s order, stating that the statutory definition of interest u/s 2(28A) includes any service fee or other charge in respect of moneys borrowed or debt incurred, and thus, the discounting charges were rightly treated as interest and liable for TDS u/s 194A. Issue 2: Charging of Interest u/s 201(1A)The Revenue's appeal contested the CIT(A)'s direction to charge interest u/s 201(1A) from the date of deductibility of tax till the payment by the deductee, arguing that interest should be computed till the date of actual payment of taxes. The Tribunal, however, upheld the CIT(A)'s direction, referencing CBDT Circulars and the jurisdictional High Court's decision in CIT vs. Majestic Hotel Ltd. (2006) 204 CTR (Del) 330. The Tribunal noted that interest, being compensatory in nature, should be charged till the date the tax is actually deposited, regardless of whether it is paid by the deductee or the assessee. Therefore, the CIT(A)'s order to levy interest from the date of deductibility till the payment by the deductee was found to be justified. Conclusion:Both the appeals of the assessee and the Revenue were dismissed, affirming the treatment of discounting charges as interest u/s 2(28A) and the direction to charge interest u/s 201(1A) from the date of deductibility till the payment by the deductee.
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2007 (1) TMI 214
Issues:
Appeals against CIT's order under s. 154 of the IT Act, 1961 for asst. yrs. 1994-95 to 1999-2000 regarding taxing interest income on enhanced compensation on accrual basis.
Analysis:
The appeals challenged the CIT's order under s. 154 of the Act, contending it was beyond jurisdiction and misinterpreted s. 154. The background revealed assessments for the years in question were initially framed by the AO under s. 143(3) r/w s. 147, then reviewed and cancelled by the CIT under s. 263, directing interest income to be taxed on accrual basis. However, the CIT later amended this order under s. 154, directing income to be assessed on actual receipt basis. The assessee argued that s. 154 only allows rectification of apparent mistakes and does not permit unsettling legal propositions. The CIT's reversal of the accrual basis decision based on a Supreme Court judgment was deemed impermissible under s. 154.
The Departmental Representative supported the CIT's s. 154 order, explaining it aimed to tax interest income from previous years. The Tribunal found the CIT's s. 154 order untenable as s. 154 only allows rectification of apparent mistakes, not legal propositions. The CIT's original decision, based on a Supreme Court judgment, remained valid, and the CIT had no authority to reverse it under s. 154. The Tribunal held the CIT's order was impermissible under s. 154 and allowed the assessee's appeals.
The Tribunal clarified that the CIT's intention to tax interest income from earlier years was irrelevant to the current proceedings, as those years were not under review. The Revenue was advised to consider the CIT's intent for those years in accordance with the law separately. Ultimately, the appeals of the assessee were allowed, and the CIT's order under s. 154 was deemed impermissible and canceled.
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2007 (1) TMI 213
Challenge the Order passed by the CIT u/s 263 - assessment order passed u/s143(3) - Erroneous And Prejudicial Order - deduction under ss. 80HHC and 80-IB - receipt of duty drawback and samples - HELD THAT:- We are satisfied that the AO had made inquiries in regard to the applicability of s. 80-IA(9) and the assessee had provided an explanation in that regard by a letter in writing. Thus, it would be safe to deduce that quantification of deduction under ss. 80HHC and 80-IB of the Act was made by the AO on being satisfied with the explanation of the assessee. The Hon'ble Bombay High Court in the case of Gabriel India Ltd. specifically observed that "such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard.
Whether the AO was correct in computing the deduction u/s 80HHC without reducing from the "profits of business"- The deduction allowable u/s 80-IB of the Act. The CIT has held that in view of the provisions of s. 80-IA(13), the deduction u/s 80HHC is to be computed by reducing from the "profit of business" the deduction allowable u/s 80-IB of the Act. The conclusion drawn by the AO is supported by the decisions of the Tribunal in the cases of Bharat Heavy Electrical Ltd.[2005 (7) TMI 299 - ITAT DELHI-E], Mittal Clothing Co.[2005 (6) TMI 480 - ITAT BANGALORE], Toshica Creation [2005 (7) TMI 307 - ITAT JAIPUR].
In Bharat Heavy Electrical Ltd., the Tribunal held that s. 80HHC of the Act does not authorize adjustment of deduction under ss. 80HH, 80HHB or s. 80-I from the export profits before deduction u/s 80HHC is given. Whatever deduction is computed by applying the formula prescribed by s. 80HHC, same is to be allowed without such profits being reduced by other deduction.
It cannot be inferred that the stand taken by the AO is unsustainable in law so as to render the order as prejudicial to the interest of Revenue. Certainly, the point of view of the AO is a possible view in the eye of law and the CIT cannot prefer another view and treat the order as erroneous and prejudicial to the interest of the Revenue. Therefore, following the ratio of judgments of the apex Court and Bombay High Court in Malabar Industrial Co. Ltd.[2000 (2) TMI 10 - SUPREME COURT] and Gabriel India Ltd.[1993 (4) TMI 55 - BOMBAY HIGH COURT] the order of the AO on the issue of computing deduction under ss. 80HHC and 80-IB cannot be considered as erroneous insofar it is prejudicial to the interest of the Revenue.
Exclusion of incomes of duty drawback and samples - computing deduction u/s 80-IB of the Act - AO had considered such amounts as part of eligible profits for the purposes of computing deduction u/s 80-IB of the Act. On the issue of duty drawback, the judgments in the case of India Gelatine & Chemicals Ltd. [2004 (4) TMI 20 - GUJARAT HIGH COURT] and of the Tribunal in the case of Metro Tyres Ltd.[2001 (8) TMI 1388 - ITAT DELHI] and A.P. Industrial Components Ltd. [2001 (1) TMI 222 - ITAT HYDERABAD-A] support the stand of the AO. Similarly, Special Bench of the Tribunal in the case of Nirma Industries Ltd.[2005 (4) TMI 242 - ITAT AHMEDABAD] and Mumbai Bench of the Tribunal in the case of Investwel Publishers (P) Ltd.[2004 (10) TMI 259 - ITAT BOMBAY-E] support the case of the assessee and the conclusion drawn by the AO.
In contrast the CIT and the ld DR interpreted "derived from" to infer that such incomes are not includible for the purposes of s. 80-IB of the Act and reliance was placed in the case of Sterling Foods. Again on this aspect, it is evident that it is a matter of interpretive exercise and two possible interpretations are feasible. Therefore, without adjudicating as to which is a correct interpretation, it is clear that s. 263 is unwarranted in such situation. Therefore, on this aspect also, the assumption of jurisdiction by the CIT u/s 263 is unjustified.
Thus, we hold that the CIT erred on facts and in law in exercising revisionary powers u/s 263 holding that the assessment order passed u/s143(3) of the Act was erroneous and prejudicial to the interest of the Revenue.
In the result, the appeal of the assessee for asst. yr. 2001-02 stands allowed.
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