TMI Blog2001 (12) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... Date not mentioned by AR 25-03-1991 3. Original Assessment under s. 143(3) -N.A.- 23-11-1992 4. Notices under s. 148 issued 27-01-1994 27-01-1994 5. Return under s. 147 filed on 17-3-1994 17-3-1994 6. Return again processed under s. 143(1)(a) r/w r. 147 31-3-1994 31-3-1994 7. Regular Assessment year under s. 147 r/w s. 143(3) made on 15-02-1995 15-02-1995 3.1. Shri Patel submitted that no regular assessment was made under s. 143(3) for asst. yr. 1989-90. Only intimation under s. 143(1)(a) was issued. However, in asst. yr. 1990-91, original assessment under s. 143(3) was made. He submitted that proceedings under s. 147/148 were initiated against the assessee to consider the question relating to admissibility of depreciation on Delhi and Bombay office buildings (which were then disallowed during asst. yr. 1991-92) on the ground that legal conveyance of these buildings were not completed during the relevant assessment years. The reassessment proceedings under s. 148 were taken up with reference to depreciation allowed only and no other issue was mentioned in the reasons recorded u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely because he happens to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts. (B) Garden Silk Mills Ltd. vs. Dy. CIT (1999) 151 CTR (Guj) 533 : (1999) 237 ITR 668 (Guj) In this case also the assessee had claimed the amount of customs duty forming part of closing stock value, by way of a deduction in the computation of net taxable income on the ratio in the case of Lakhanpal National Ltd. vs. ITO. It was allowed by the AO. The Hon'ble High Court held that without there being any material before the AO on the basis of which he could held belief about the correctness of the decision rendered in Lakhanpal National Ltd.'s case which was a decision of the jurisdictional High Court and binding on him otherwise, the AO could not have reason to believe that the income had escaped assessment due to application of Lakhanpal's case by the original AO. The notice issued under s. 148 was accordingly held to be invalid. (C) Sheth Brothers vs. Jt. CIT (2001) 169 CTR (Guj) 519 : (2001) 251 ITR 270 (Guj): This was a case relating to reassessment proceedings initiated under s. 147(a) for asst. yr. 1990-91. The notice under s. 148 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the judgments of the Hon'ble Supreme Court in the cases of ITO vs. Mewalal Dwarka Prasad (1989) 76 CTR (SC) 40 : (1989) 176 ITR 529 (SC) and V. Jagmohan Rao vs. CIT (1970) 75 ITR 373 (SC). It has been held in the later judgment that once the proceedings under s. 34 of IT Act, 1922 (equivalent to s. 147) are validly initiated, the jurisdiction of the AO is not restricted to portion of income that escaped assessment as mentioned in the reasons recorded under s. 147. Once the assessment is reopened, the previous underassessment is set aside and the whole assessment proceedings start afresh. The ITO not only had the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year. 4.1. The learned senior Departmental Representative also placed reliance on the judgment of the Hon'ble Delhi High Court in the case of Rakesh Aggarwal vs. Asstt. CIT (1997) 142 CTR (Del) 272 : (1997) 225 ITR 496 (Del) in which it was held that s. 147 as amended w.e.f. 1st April, 1989, brings about a significant change in the preliminary requirement of certain mandatory conditions before reassessment proceedings could be initiated under the old section. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO should have finally ascertained the facts by legal evidence. Unless the ground or the material on which his belief is based, is found to be so irrational as not to be worthy or being called a reason by any honest man, his conclusion, that it constitutes a sufficient reason, cannot be overridden. If the AO honestly comes to a conclusion that a mistake has been made, it matters nothing so far as his jurisdiction to initiate the proceedings under s. 147 is concerned, that he may have come to an erroneous conclusion whether on law or on facts. The Court will not in exercise of its extraordinary jurisdiction under the Constitution, examine the sufficiency of the reason which led the AO to believe that the income had escaped assessment." 4.3. The learned Senior Departmental Representative also placed reliance on the judgment of the Hon'ble Supreme Court in the case of Ess Kay Engineering Co. (P) Ltd. vs. CIT (2001) 166 CTR (SC) 396 in which it was held that merely because the case of assessee was accepted as correct in the original assessment, ITO is not precluded from reopening the assessment on the basis of his findings of facts made on the basis of fresh materials in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under s. 143(1)(a). This view is clearly supported by the judgments of the Hon'ble Supreme Court relied upon by the learned senior Departmental Representative. The initiation of proceedings under s. 147 within a period of four years, on the facts of the present case, is found to be absolutely valid and justified in view of the judgment of the Hon'ble Gujarat Court in the case of Praful Chunilal Patel. Hence this common ground raised by the assessee in asst. yrs. 1989-90 and 1990-91 is rejected. 6. The next common ground relates to allowability of wealth-tax on specified business assets under Explanation to s. 40(a)(iia) of the IT Act, 1961. The assessee claimed deduction of Rs. 1,05,122 in asst. yr. 1989-90 and Rs. 1,00,635 in asst. yr. 1990-91. The assessee has raised a similar ground in asst. yr. 1992-93 also where deduction of wealth-tax of Rs. 1,18,700 was claimed. However, the learned counsel at the time of hearing contended that the ground relating to assessee's claim for deduction of Rs. 1,18,700 in asst. yr. 1992-93 has become infructuous as the said disallowance was made by way of prima facie adjustment under s. 143(1)(a), and such prima facie adjustment made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not possible to look into the provisions of WT Act, 1957 to supply any omissions in the said provisions. The Calcutta Bench thus held that s. 40 of Finance Act, 1983, by which wealth-tax of company was revived cannot be treated as a part of WT Act. The judgment of the Hon'ble Supreme Court in the case of Associated Cement Companies Ltd. has considered the question relating to grant of tax credit in respect of excise duty for cement levied under the Central Excise and Salts Act, 1944. It was held by the Hon'ble Supreme Court that the credit was to be given to the appellant under the tax credit scheme only in respect of excise duty for cement levied under the Central Excise and Salts Act, 1944, and not in respect of special excise duty levied under s. 80 of the Finance Act, 1965. On a parity of reasoning from the aforesaid decision of Supreme Court, it was contended by the learned counsel that the wealth-tax levied for asst. yrs. 1989-90 and 1990-91 as a result of levy under the Finance Act, 1983 by virtue of s. 40 cannot be treated as levy under the WT Act. Only if wealth-tax is levied under the WT Act, 1957, deduction is denied under s. 40(a)(iia) of WT Act. The arguments advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mad) 5 : (1998) 233 ITR 497 (Mad); and (iv) CIT vs. Autokast Ltd. (2001) 165 CTR (SC) 16 : (2001) 248 ITR 110 (SC). 7.1. We have considered the submissions made by the learned representatives. There is no material on record to show that commission income received by the assessee can be treated as income derived from the said industrial undertaking. The learned counsel could not point any material or evidence existing on record on the basis of which any direct nexus between the commission income and manufacturing activities of the industrial undertaking can be established. The commission income had no nexus with the activities of the industrial undertaking owned by the assessee. We therefore, confirm the view taken by the CIT(A) of excluding the commission income for purpose of computing deductions under s. 80-I and 80-IA in asst. yrs. 1989-90 and 1990-91. 8. The next ground raised by the assessee in their appeal for asst. yr. 1992-93 relates to exclusion of interest income of Rs. 2,12,426 being interest income on income-tax refund and Rs. 2,60,204 being interest income on intercorporate deposits, for purpose of computation of deductions under s. 80-I/80-IA. The learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gains derived from export of any goods. The Supreme Court in this case has also held that the immediate source of the profit was sale of goods. The export of other goods was not even the second degree but it had to be traced to an even more remote degree. The import was of palm oil. The import was possible because of earlier export of goods at a loss. In the chain of sequence the earlier export would be four degrees away. The assessee's profit from sale of its goods in India could not be said to have been derived from export sales. 8.4. CIT vs. Autokast Ltd. The relevant head note is reproduced below: "From the decision of the Kerala High Court [see CIT vs. Autokast Ltd. (1997) 138 CTR (Ker) 75 : (1998) 229 ITR 789 (Ker)] holding that where the assessee kept the moneys borrowed from the Industrial Development Bank of India for purchase of plant and machinery in short-term deposits in banks and used it in bill discounting until payment for the plant and machinery, the interest earned on the deposits was not taxable in the hands of the assessee as income from other sources but would go to reduce the actual cost of the plant and machinery, the Department took an appeal to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e will now deal with the Revenue's appeals. The Revenue has raised the following identical ground in all these appeals: (1) The learned CIT(A) has erred in law and on facts of the case in allowing deduction under s. 80-I of Rs. 3,88,486 for asst. yr. 1989-90 (Rs. 2,52,978 for asst. yrs. 1990-91, Rs. 2,87,637 for asst. yrs. 1991-92; and Rs. 1,63,165 for asst. yr. 1992-93) on interest income. The interest earned on short-term deposits of surplus or idle funds cannot be treated as profits and gains derived from the business in view of judgments; (i) CIT vs. Universal Radiators (P) Ltd. (1981) 128 ITR 531 (Mad) (ii) CIT vs. Cochin Refineries Ltd. (1984) 43 CTR (Ker) 103 : (1985) 154 ITR 345 (Ker); and (iii) English Electric Co. of India Ltd. vs. CIT (1987) 63 CTR (Mad) 135 : (1987) 168 ITR 513 (Mad). 9.2. At the outset, Shri M.K. Patel, the learned counsel submitted that the ground raised by the Revenue is misleading as the relief granted by the CIT(A) does not pertain to interest earned on short-term deposits of surplus or idle funds but it pertains to interest income derived by the assessee from activities which are inextricably connected with the activities of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned, it has direct nexus with the manufacturing activities of the industrial undertaking. Unless such guarantee against import of raw material are given, the assessee will not be able to acquire raw material for use in manufacture of their products and keeping of margin money as deposit with bank against guarantee is a normal trade practice. He therefore, urged that the CIT(A) has rightly directed the AO to grant deduction under s. 80-I/80-IA on such interest on margin money, bills discounting and letters of credit, etc. 9.5. However, in respect of interest on electric power connection deposits and telephone connection deposits, the learned counsel was fair enough to admit that the judgment of the Madras High Court relied upon by the learned Senior Departmental Representative and cited supra is against the assessee on this point. 9.6. As regards the interest on investment deposit with IDBI under s. 32AB is concerned, the learned counsel contended that the deposits in the Investment Deposit Scheme with IDBI have been made out of income of industrial undertaking and the same has been utilised for purchase of plant and machinery. The amount set apart and deposited with IDBI has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undoubtedly been made from income of industrial undertaking. It is apparent from the P L a/c that the assessee is engaged solely in the activity of manufacture of induction furnace, heating products, welding products, electronics products in technical collaboration with Inductothem incorporated in USA and its associate companies world over. The deposits in investment deposits with IDBI have been made out of income of the said industrial undertaking for the exclusive purpose of its utilisation for purchase of new plant and machinery. Such interest income has, therefore, clear and direct nexus with the activities of the said industrial undertaking. The interest on deferred payments received from the customers is a part of sale price as has been held by the Hon'ble apex Court in the judgment relied upon the learned counsel. We are therefore, of the considered opinion that the view taken by the CIT(A) in relation to these three items of interest income is valid and justified. However, deduction granted under s. 80-I/80-IA on interest received on electric power connection deposits and telephone connection deposits by the CIT(A), details of which have been given in a(ii) of the chart rep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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