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Issues Involved: Determination of whether the Tribunal was justified in holding that the Commissioner of Income-tax could not invoke jurisdiction under section 263 of the Income-tax Act after an assessment was made under section 143(1), and whether the order of the Assessing Officer was erroneous and prejudicial to the interests of the Revenue.
Facts: The case involved a partnership firm formed with a trust and seven partners, where the trust later retired from the firm. The Commissioner of Income-tax disallowed interest paid by the firm to the trust, leading to an appeal by the assessees to the Tribunal. The Tribunal concluded that the Commissioner could not invoke section 263 after an assessment under section 143(1), and that the proposed addition by the Commissioner was not within the ambit of the initial assessment. Findings: Referring to the case of Malabar Industrial Co. Ltd. v. CIT, it was established that the Commissioner could invoke section 263 if the Assessing Officer's order was erroneous and prejudicial to the Revenue. The court found that the firm was not entitled to claim deduction for interest paid to the trust, as the partnership deed specified that the goodwill amount was payable by incoming partners, not the firm. The court deemed the Assessing Officer's order as erroneous and prejudicial to the Revenue, ruling in favor of the Department and against the assessees. Conclusion: The court answered the question in the negative, supporting the Department, and disposed of both appeals with no order as to costs.
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