TMI Blog2003 (7) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... s 100 per cent export oriented unit whose income is exempt under s. 10B of the IT Act, 1961. While the AO rejected the assessee s claim in regard to the interest amounting to Rs. 5,61,410 and added the same to the assessee s income, he accepted such claim in regard to the amount of Rs. 4,85,881 in respect of interest received from M/s Wolkem India Ltd. According to him the aforesaid amount represented assessee s business income and as such it was exempt under s. 10B of the Act, On the facts and in the circumstances of the case, this view taken by the AO was considered by the learned CIT to be erroneous in as much as it was prejudicial to the interest of Revenue. Accordingly a show cause notice under s. 263 was issued by the CIT to the assessee. In response to this show cause notice the learned authorised representative, inter alia, made the following submissions before the learned CIT. (i) The appellant-firm required advances against the supply of raw materials from the assessee from time to time and after adjustment of advances against the purchases, the aforesaid company paid interest on its surplus balances. Under these circumstances the amount of interest received by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the said parties which were considered to be surplus and which resulted into an interest income to it. Admittedly, M/s Wolkem India Ltd. is also a sister-concern of the assessee. There is nothing on record to show that M/s Wolkem India Ltd. had desired deposit of any specific amount of advances prior to its agreeing to supply raw material to its own sister-concern. Even if there is business practice where supplier of certain goods do require advances for future purchase, the transaction of the assessee with its own sister-concern is to be considered on a different footing. In these circumstances in the absence of any material to the contrary, the AO could not be said to be right in taking the view that interest received by the assessee from M/s Wolkem India Ltd. was materially different in nature from the interest in respect to other parties without due inquiries. The learned CIT(A) has confirmed the addition of Rs. 5,61,410 made by the AO in respect of other parties. The CIT relied on the decision of the Hon ble Rajasthan High Court in the case of Murli Investment Co. vs. CIT (1987) 65 CTR (Raj) 5 : (1987) 167 ITR 368 (Raj) wherein income derived from surplus funds was not con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse available in view of various regular judgments and, therefore, has not done anything wrong. It is only a substitution of opinion by the higher superior officer and hence the ratio laid down squarely applies to the facts of the present case. 8. An order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the CIT simply because, according to him, order should have been written more elaborately. The section does not visualize a case of substitution of the judgement of the CIT for that of the ITO who passed the order, unless the decision is held to be erroneous. Cases may be visualized where the ITO, while making the assessment examines the accounts, makes inquiries, applies his mind to the facts of the case and determines the income either by accepting the accounts or by making some estimates himself. The CIT, on perusal of the records, may be of the view that the estimate made by the concerned AO was on lower side and left to the CIT he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the CIT wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest or dividend income can be treated as income from the industrial undertaking would be whether such interest/dividend income has been received during the normal course of business of such undertaking or not. The investment etc., therefore, cannot be treated as income of the industrial undertaking. On examination of details of interest and copies of the accounts of the parties concerned revealed that the assessee was having regular business dealing of purchases from M/s Wolkem India Ltd. which took advances from the assessee on sales made by it to the assessee and, therefore, only this income could be considered as income from industrial undertaking as the same had arisen during the course of regular business and, therefore, the sum of Rs. 4,85,861 was to be treated as income of the hundred per cent export-oriented unit and thus exempt under s. 10B of the Act. The AO had also considered various case laws relied upon by the learned authorised representative. 13. The learned CIT has observed in his order that the AO had not applied his mind to the facts and circumstances of the case and he has not made due inquiries. From the perusal of p. 2 of the order of the AO as mentioned ab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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