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2007 (5) TMI 213
Legality of a notice issued by the Deputy Commissioner of Commercial Taxes, Kollam, vis-a-vis the provisions of the Kar Vivad Samadhan Scheme, 1998 framed under the Finance (No. 2) Act, 1998
Held that:- Once it is found that a statutory authority had the jurisdiction to reopen a proceeding or set aside the order of the assessing authority, only the higher authorities can interfere therewith. Only because the appellant had taken recourse to the Scheme, the same, in our opinion, would not attract either sub-section (3) of section 90 of the Scheme or section 91 thereof so as to cover a subject which is within the exclusive domain of the State Legislature. In that sense, the said Scheme must be read as limited to those laws which Parliament has the legislative competence to enact and not to those which fall within the exclusive legislative field of a State, save and except where expressly so stated or inferred by necessary implication. A Legislature is presumed to enact a law only within its domain of field of legislation. If the contention that the provisions of the Scheme would also apply to tax laws created by the State is accepted, it being beyond the legislative competence, would amount to a colourable piece of legislation.
This appeal, thus, being devoid of any merit, is dismissed with the aforementioned observations.
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2007 (5) TMI 212
Issues:
1. Interpretation of section 43B of the Income-tax Act regarding the justification of payments and deletion of additions.
2. Determination of whether a "jeep" can be equated with a "motor car" under section 37(3A) of the Income-tax Act.
3. Assessment of whether the expenditure on the repair of motor cars should be included under section 37(3A) of the Income-tax Act.
Analysis:
1. The first issue revolves around the interpretation of section 43B of the Income-tax Act concerning the justification of payments and deletion of additions. The Tribunal's decision was challenged, and the High Court referred to the Supreme Court's ruling in the case of Allied Motors P. Ltd. v. CIT [1997] 224 ITR 677. The High Court ruled in favor of the assessee based on the precedent set by the Supreme Court, thereby concluding that the Tribunal's decision was not in accordance with the law.
2. The second issue pertains to whether a "jeep" can be considered a "motor car" under section 37(3A) of the Income-tax Act. The High Court analyzed the provisions of section 37(3A) and (3B) which aimed to regulate extravagant expenditure by assessees on specific items, including motor cars. Referring to a previous case, the court clarified that the term "motor cars" in section 37(3B) refers to passenger cars and may not include goods vehicles. The High Court held that a "jeep" falls under the category of passenger cars and not goods vehicles, disagreeing with the Tribunal's decision. Therefore, the High Court concluded that the Tribunal was unjustified in its interpretation, ruling in favor of including expenses related to a "jeep" under section 37(3A).
3. The final issue concerns whether the expenditure on the repair of motor cars should be included under section 37(3A) of the Income-tax Act. The High Court examined the language of the statute, particularly the term "maintenance" in section 37(3B)(ii) which includes "running and maintenance of... motor cars." The court emphasized that if "repair" is not encompassed within "maintenance," it raises questions about the interpretation of the statute. Consequently, the High Court determined that the Tribunal erred in excluding repair expenses from the scope of maintenance under section 37(3A), thereby ruling in favor of including repair costs for motor cars under the relevant provision.
In conclusion, the High Court provided detailed analyses and rulings on each issue, ensuring clarity and adherence to legal principles in interpreting the Income-tax Act provisions.
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2007 (5) TMI 211
Issues Involved:
1. Whether the parental flock is considered stock-in-trade.
2. Whether the expenditure incurred on the parental flock is revenue expenditure.
Issue-Wise Detailed Analysis:
1. Whether the Parental Flock is Considered Stock-in-Trade:
The central question addressed by the court was whether the parental flock could be classified as stock-in-trade. The Tribunal had previously held that the parental flock was not stock-in-trade, arguing that it was purchased not for sale but for rearing to produce eggs, which would then hatch into commercial chicks intended for sale. The Tribunal's decision was based on the method of accounting suggested by the Institute of Chartered Accountants of India, which did not provide a specific method for evaluating the parental flock at the end of the accounting year.
The Revenue contended that the Tribunal failed to consider the business's modus operandi, which involves purchasing one-day-old chicks (parental flock), rearing them, and collecting and processing the eggs to produce commercial chicks. The Revenue argued that if the parental flock is not accounted for as closing stock, it would result in a distorted picture of the business's true profits.
The court referred to several precedents to understand the concept of stock-in-trade. In Chainrup Sampatram v. CIT, the Supreme Court held that the valuation of unsold stock at the close of an accounting period is necessary to determine the trading results of that period. In CIT v. A. Krishnaswami Mudaliar, it was held that the stock-in-trade must be taken into account for computing the true profits of the year. In CIT v. British Paints India Ltd., the Supreme Court emphasized that excluding certain costs for valuing stock-in-trade could result in a distorted picture of the business.
The court concluded that the parental flock should be treated as stock-in-trade. It noted that the parental flock, though not directly sold, plays a crucial role in the business's production process and has a market value even after its productive period. The court emphasized that the parental flock's value could not be regarded as nil unless proven otherwise by adequate evidence.
2. Whether the Expenditure Incurred on the Parental Flock is Revenue Expenditure:
The Tribunal had also held that the expenditure incurred on the parental flock was revenue expenditure. The Revenue argued that only those purchases that contributed to the income of the accounting year should be allowed as business expenses. The remaining stock should be accounted for as closing stock.
The court noted that the Commissioner of Income-tax (Appeals) and the Tribunal had been guided by the concept that stock-in-trade means what is bought and sold. However, the court pointed out that the parental flock, being a living species, grows and lays eggs, which are then hatched to produce commercial chicks. The court emphasized that the parental flock's value could not be disregarded simply because it is eventually discarded or destroyed.
The court remanded the matters to the Assessing Officer to reassess, keeping in view the principles laid down in the cited cases. The court allowed the assessee to adduce evidence to show that there was nothing to be maintained as stock-in-trade by the end of the year.
Conclusion:
(a) The question posed in all the reference cases is answered in the negative, in favor of the Revenue and against the assessee.
(b) The appeals under section 260A of the Income-tax Act by the Revenue are allowed to the extent that the parental flock is to be treated as stock-in-trade.
(c) All matters are remitted to the Assessing Officer to reassess, considering the citations referred to and the principle that the value adopted as closing stock in a particular assessment year should be treated as the value of the opening stock-in-trade in the immediately next following year.
(d) The assessee is allowed to present evidence to show that there was nothing to be maintained as stock-in-trade by the end of the year. The Assessing Officer shall be guided by the principles laid down to resolve the controversy.
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2007 (5) TMI 209
Validity Of assessment order passed u/s 158BC - barred by limitation as provided u/s 158BE - Search operation u/s 132 - documents seized and some fishing vessels/trawlers searched - restraint order u/s 132(3) passed - notice issued u/s 158BC - HELD THAT:- The fact that the letter dated September 15, 1998, sent by the Assistant Director of Income-tax (Investigation), Belgaum, to the Assistant Director of Income-tax (Investigation), New Delhi, clinches the issue. It has been categorically stated in the letter that the search conducted was a mere formality since there was no prohibitory order in existence. The unarticulated suggestion in this letter is that the Revenue carried out the search on September 14, 1998, merely to extend the period of limitation and not because it was necessary to conduct a search for making any recovery or seizure. We agree with the conclusion of the Tribunal that this letter clearly suggests that the search and seizure operation had come to an end on November 6, 1996, and that on September 14, 1998, there was no restraint order in respect of the fishing trawlers of the assessee and, therefore, the search and panchnama drawn on September 14, 1998, were not in accordance with law.
This being the position, it cannot be said that the last panchnama drawn up in respect of the search and seizure operation pertaining to the assessee, in terms of Explanation 2 to section 158BE of the Act, was drawn up on September 14, 1998-it was actually drawn on November 6, 1996-and the period of limitation must, therefore, run from that date onwards.
We are clearly of the view that the action for seizing the fishing trawlers ought to have been taken by the Revenue u/s 132(1) of the Act and not u/s 132(3) of the Act. By merely resorting to a restraint order u/s 132(3) of the Act, and that too only up to September 30, 1997, the Revenue could not have extended the time limit for passing an assessment order.
Learned counsel for the assessee submitted, that even otherwise, September 14, 1998, cannot be the date of the last panchnama because in fact no seizure was effected on that date. We do not think it necessary to go into this question on the facts of the present case. We also do not think it necessary to discuss the provisions of rule 112(7) of the Income-tax Rules relied upon by learned counsel. The reason for our not discussing this is because we have come to the conclusion that the search and seizure operation actually concluded on November 6, 1996, and the events that took place on September 14, 1998, were a make-believe intended to extend the time limit, which was not permissible.
The issues raised being clearly settled, and since we find no fault in the order passed by the Tribunal, in our opinion, no substantial question of law arises for consideration - The appeal is dismissed.
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2007 (5) TMI 208
Territorial jurisdiction of the High Court - transfer a case from one jurisdiction to another u/s 127(2) - Appeal u/s 260A of the Act is pending before the Lucknow Bench of the Allahabad High Court in respect of the order passed by the Tribunal - HELD THAT:- The effect of the transfer of jurisdiction from Lucknow to Delhi specifically arises in the present case and we are of the view that the jurisdiction in respect of the assessee having been transferred to Delhi lock, stock and barrel and all the records of the assessee also having been transferred from Lucknow to Delhi, it is only the High Court in Delhi that can entertain an appeal u/s 260A of the Act directed against the order passed by the Tribunal.
Our conclusion follows from a plain reading of the Explanation to section 127(4) of the Act as well as from the effect of the order, passed by the CIT (Central), Kanpur, u/s 127(2) of the Act. Consequently, with effect from September 29, 2005, (the date from which the order passed u/s 127(2) of the Act is enforced) the jurisdiction in respect of the assessee for future proceedings u/s 260A of the Act is with the Delhi High Court. Admittedly, the present appeals have been filed after September 29, 2005, and so they would be maintainable in this court and no other High Court.
Thus, we reject the contention of learned counsel for the assessee.
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2007 (5) TMI 207
Order of transfer u/s 127 - notice for transfer served - transferring the case of the petitioners from the Asst. CIT, Kolkata to the Deputy CIT, New Delhi - HELD THAT:- It appears from the facts a notice for transfer was served for conducting "co-ordinated investigation in connection with the search undertaken against Radico Khaitan Limited and other associated cases." The notice, however, did not disclose the nature of investigation in connection with the search undertaken against Radico Khaitan Ltd. Since the notice did not disclose the nature of investigation and was bald, vague and general in nature, in such circumstances, in my view, it was not possible to file effective reply.
Perusing the order impugned it appears purchase of liquor by the petitioner, during the financial year 2005-06 from Rampur Distillery an unit of Radico Khaitan Limited was the sole criterion that had prompted. Revenue to issue the impugned order of transfer which, in my view, was more or less was a repetition of the impugned notice dated November 14, 2006. 'There was no deliberation on the written objection and accounts filed which was not an idle or empty formality. The impugned order is silent in that regard. Mere business transaction, whatever be the volume, cannot be the criterion for transfer in these days of brisk trade and commerce. Simply stating in the order that the transfer is for "co-ordinated investigation" does not fulfil the requirements of section 127 as it neither deals with the evidence adduced nor contains reasons which are valid and specific.
The principles of law laid down in the Sahara Airlines Ltd. v. Director General of Income-tax (Inv.) [2006 (2) TMI 128 - ALLAHABAD HIGH COURT], relied on by the Revenue, are not applicable to the facts of the case as it appears from the facts of the said judgment that the reply of the petitioner was evasive. On the contrary in the case in hand, it is not even remotely argued on behalf of the Revenue that the petitioner had suppressed material facts or the reply was evasive.
Therefore, in my view, the impugned notice and the impugned order of transfer cannot be sustained and, thus, are set aside and quashed.
The writ petition, hence, is allowed.
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2007 (5) TMI 206
Issues involved: Determination of whether the income of the assessee should be assessed under the head 'Income from business' or 'Income from property'.
Summary:
The High Court of Rajasthan addressed the issue of assessing the income of M/s. Hotel Ratanada International Pvt. Ltd. under the appropriate head for the assessment years 1981-82 and 1982-83. The company's memorandum of association included conducting business related to various properties. The Assessing Officer initially categorized the rental income under "Income from property" disallowing depreciation. The Commissioner of Income-tax (Appeals) upheld this decision. However, the Income-tax Appellate Tribunal ruled in favor of assessing the income under "Income from business" based on the company's memorandum of association.
The High Court referred to legal precedents emphasizing the exclusive nature of income heads under the Income-tax Act. It cited the case of East India Housing and Land Development Trust Ltd. v. CIT, highlighting that income falling under a specific head must be computed accordingly. Additionally, it referenced the Supreme Court's decisions in Universal Plast Ltd. and Guntur Merchants Cotton Press Co. Ltd., which outlined factors for determining whether income from leasing assets constitutes business income.
Ultimately, the High Court concluded that the rental income received by the assessee should be assessed under "Income from property" as the hotel construction was incomplete, and no business operations had commenced. It emphasized that the company's memorandum of association did not justify categorizing the income as business income. The court directed each party to bear their own costs due to the assessee's absence during the proceedings.
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2007 (5) TMI 204
Disallowance royalty payment to non-resident company u/s 40(a)(ia) - On the ground that TDS was not paid by the assessee - HELD THAT:- On a plain reading of section 40(a)(i) of the Act, as long as the tax was deducted within the year, as was done in the present case, the provisions of the section come into play and the assessee must, therefore, be entitled to its benefit. There is no dispute about the fact that tax for the assessment year 1994-95 was deducted during the relevant previous year (but paid on September 6, 1994). For the assessment year 1995-96 the tax was deducted during the relevant previous year and while most of the amount (Rs. 1,97,23,418) was paid during the relevant previous year, a small amount of Rs. 11,011 was deposited on July 6, 1995. On a reading of section 40(a)(i) of the Act, we are of the view that the Assessing Officer erred while the appellate authorities rightly held in favour of the assessee. No substantial question of law arises for consideration.
Deduction u/s 80-IA - whether the assessee manufactures any goods - HELD THAT:- It is true that the meaning of the word "manufacture" as used in the Central Excise Act, 1944 cannot be automatically applied to the provisions of the Income-tax Act, 1961, but in the absence of any definition of the word "manufacture" as used in section 80-IA of the Act, one has to appreciate its meaning as commonly understood by any reasonable person. Looked at from this point of view, the conversion of a blank disc, which has its own utility, to a software loaded disc clearly amounts to a manufacturing activity because a new commercial product enters the market which is a distinct and different product from the blank disc.
On this issue, we see no reason to differ with the view taken by the Tribunal which merely follows the decision of the Supreme Court in Gramaphone Co. of India Ltd. v. Collector of Customs [1999 (11) TMI 62 - SUPREME COURT]. Thus, we are clearly of the view that the assessee would be entitled to the benefit of section 80-IA of the Act since it carries out a manufacturing activity.
To substantial question of law arises for consideration. The appeals are dismissed.
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2007 (5) TMI 203
Issues involved: Interpretation of provisions for bad and doubtful debts in profit and loss account under section 115JA of the Income-tax Act, 1961 for assessment year 1997-98.
Summary:
The High Court of Delhi heard an appeal by the Revenue against an order passed by the Income-tax Department regarding the treatment of provisions for bad and doubtful debts in the profit and loss account of the assessee for the assessment year 1997-98. The Assessing Officer contended that the provision was not an ascertained liability and should be included in the book profits of the assessee as per the Explanation to section 115JA of the Income-tax Act, 1961.
The Commissioner of Income-tax (Appeals) disagreed with the Assessing Officer, stating that the amount was an ascertained liability and had been correctly shown in the profit and loss account, citing the decision in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273. The Tribunal upheld this view, emphasizing that the provision for bad and doubtful debts could only be included in the book profits if it met the criteria of the Explanation to section 115JA of the Act.
Upon examining clause (c) of the Explanation to section 115JA, the Court concluded that ascertained liabilities should not be included in the book profits. It was determined that a bad and doubtful debt claimed by the assessee could indeed be treated as an ascertained liability. The Revenue's argument that such debts should have been written off was dismissed, as it would render the relevant clause of the Explanation ineffective.
Ultimately, the Court found no substantial question of law to be addressed and dismissed the appeal.
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2007 (5) TMI 202
Stay of the demand - Grant for interim relief - assessed income u/s 143(3) - demand for deposit of the tax and interest - DTAA between India-Finland - entitled to a refund of tax on the basis of the cumulative demands - application for modification - Petitioner relied upon a judgment delivered by the Special Bench of the Tribunal, in the case of the petitioner itself and pertaining to the assessment years 1997-98 and 1998-99, and responded by saying that if the judgment is implemented by the Revenue, the liability of the petitioner would be about Rs. 4.86 crores for the assessment year 2003-04 -
HELD THAT:- What has apparently come in the way of the CIT (A) is the impression carried by him (and which has been articulated by learned counsel for the Revenue) that each assessment year has to be treated as independent of the other and, therefore, the CIT (A) took the assessment year 2003-04 by itself and applying the decision of the Special Bench of the Tribunal granted relief to the petitioner by requiring a deposit of only Rs. 4.86 crores. This is, of course, one possible way of looking at the issue. However, it has to be remembered that the State is bound to be fair to those with whom it has to deal with, and to the extent possible, it must avoid any harassment to the assessee public without causing any loss to the exchequer. Therefore, if one looks at the matter in a broader perspective (and there is no reason why we should not), then it would be necessary to take into account the tax liability of the petitioner for the entire period in respect of which the dispute is still alive, that is to say from the assessment year 1997-98 till the assessment year 2003-04.
If this is done and an across the board review is taken of the tax liability of the petitioner as well as the amounts paid by the petitioner, as has actually been done by the Tribunal in its order, then the petitioner would be entitled to a refund. On the other hand, if each year is taken separately, then of course there would be a liability against the petitioner for the assessment year 2003-04 but such a narrow or constricted view does not commend itself to us since it would unnecessarily deprive an assessee of good money due to it from the Revenue. Looked at in this larger perspective, we are of the view that the petitioner would be entitled to the relief prayed for since it has, quite clearly, paid more than the amount that is due if the order passed by the Special Bench is implemented.
In arriving at this conclusion, we have also taken note of the fact that the order of the Special Bench has not been stayed and is still operative and has in fact been given effect to by the Tribunal itself in its order. Consequently, we issue a writ of mandamus and stay the requirement of the petitioner having to deposit Rs. 4.86 crores till its appeal for the assessment year 2003-04 is heard by the CIT (A). This would necessarily imply that the CIT (A) should hear the appeal of the petitioner for the assessment year 2003-04 without insisting on any deposit.
The writ petition is allowed. All pending interim applications are disposed of.
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2007 (5) TMI 201
Issues: Seizure of jewellery during block assessment proceedings, retention of jewellery by respondents despite discharge of tax liabilities, applicability of relevant provisions of Income-tax Act, necessity of distinguishing jewellery between spouses, relevance of appeal under section 260A, previous legal precedents regarding retention of seized assets.
In this case, some jewellery belonging to the petitioners was seized by the respondents during block assessment proceedings. The petitioners claimed that the present value of the jewellery is higher than the seized amount. Despite paying all demands raised during the block assessment and discharging all liabilities, the respondents retained the jewellery, citing difficulty in distinguishing between the jewellery of the husband and wife. The petitioners argued that as per section 132B(3) of the Income-tax Act, assets should be returned once liabilities are discharged. Additionally, rule 112C of the Income-tax Rules also mandates the return of assets after liabilities are settled. The court emphasized that the respondents cannot keep the jewellery once tax liabilities are cleared.
Furthermore, the court referred to legal precedents such as Mukundray K. Shah v. Director General of Income-Tax and Naresh Kumar Kohli v. CIT, where it was held that the mere filing of an appeal does not automatically allow the retention of assets. The court highlighted that if the Revenue wishes to retain assets, they must seek a stay order from the appropriate authority. In Veena Jain v. CIT, it was established that once penalties are paid, seized assets should be returned unless valid reasons exist for retention. The court in the present case found the reasons provided by the respondents for withholding the jewellery to be irrelevant since the petitioners had fulfilled their tax obligations.
Given the circumstances, the court allowed the writ petition, ordering the respondents to return the jewellery to the petitioners within fifteen days and pay costs to petitioner No.1. As there was no stay granted by the court regarding the appeal under section 260A, the respondents were directed to comply with the order appealed against. The court's decision was based on the clear provisions of the Income-tax Act and previous legal interpretations regarding the retention of seized assets.
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2007 (5) TMI 200
CIT opined that as a partner is an intrinsic part of a firm, only because no specific search warrant was issued in the name of the assessee-firm, the same would not entitle it to take benefit of the Voluntary Disclosure Scheme 1997 - in view the purport and object of Scheme, in the place of literal interpretation, the rule of purposive construction should be applied - not a fit case where we should invoke our extraordinary jurisdiction under article 136 of the Constitution of India
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2007 (5) TMI 199
Whether the Tribunal was right in holding that penalty under section 271(1)(c) was not exigible in the present case - It is not a case where penalty has been imposed for breach or contravention of a commercial statute where lack of intention to contravene or existence of bona fides may not be of much importance. It is also not a case where penalty is mandatorily imposable - appeal of assessee is allowed
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2007 (5) TMI 198
Assessing authority treated the difference between the income as per original return and revised income as concealed income and levied penalties - omission was attributable on the part of the assessee to conceal his income so as to evade income-tax thereon may not be correct - we do not intend to go into the said question; as there are enough materials to show that the action on the part of the appellant may not be said to be such which would attract the penal provision under section 271(1)(c)
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2007 (5) TMI 197
So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) - revenue's appeal is allowed
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2007 (5) TMI 196
Computation of the profits of the Indian (PE) of the Korean company - held that profits, if any, from the Korean operations (designing and fabrication) arose outside India, they are not taxable - As regards the quantum of profits embedded in the Indian operations attributable to the Indian PE, we hold that the CIT was right in attributing the profits to the Indian PE at 10 % of the gross receipts in respect of its activities of installation, commissioning etc. performed in India
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2007 (5) TMI 195
Whether the ITAT was justified in holding that the method adopted by the assessee for valuation of closing stock of "zinc concentrate" at the international rate, was in order, particularly when there was no export during the financial year ending March 31, 1996, and particularly when in the past the assessee has been valuing the closing stock of zinc concentrate for captive consumption at the weighted average cost - held that Tribunal had erred in deleting the additions
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2007 (5) TMI 194
Whether section 80AB can be applied to section 80HHC - Whether, in determination of business profit u/s 80HHC, the unabsorbed business losses of the earlier years u/s 72 of the Act should be set off - two points which had been posed by the High Court for its decision are answered in the negative, i.e., against the Revenue and in favour of the assessee.
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2007 (5) TMI 193
As the question of "bad and doubtful claims" is concerned, again the same is not an expenditure. Section 36(1)(vii) of the Act whereupon the learned Additional Solicitor General placed strong reliance, cannot be said to have any application whatsoever in the instant case. It is not relevant for computing the profit under the 1961 Act. In any event, section 44 of the Act provides for a non obstante clause and, thus, would prevail over the former - revenue's appeal dismissed
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2007 (5) TMI 192
Whether Tribunal was correct to accept the principle of preponderance of probabilities in holding that the claim of the appellant that the sum received by way of gifts through normal banking channels was not genuine and that it was liable to be assessed u/s 68 - Whether the conclusion of the Tribunal that the claim of gift is not genuine is reasonable and based on relevant material and not perverse - HC committed error in disturbing the concurrent findings of fact - Appeal of revenue allowed
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