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2011 (2) TMI 86 - HC - Income TaxBusiness Expenditure - The amount of Cess paid by an assessee under the Assam Agricultural Income-tax Act on green tea leaf is allowable as a business expenditure in computing the composite income under rule 8 of the Income-tax Rules, 1962, has already been decided by a Division Bench of this Court in the case of CIT v. A.F.T. Industries Ltd.and it has been held that the amount of Cess so payable is deductible Under Section 263- There was no justification of invoking section 263 of the Income-tax Act for reopening of the assessment on the basis of a proposal given by the Assessing Officer himself after passing of the order of the assessment on the basis of the precedent of Gauhati High Court which has not been approved by a Division Bench of our High Court.
Issues:
1. Whether Cess paid on green tea leaves is allowable as a business expenditure in computing composite income. 2. Whether the conditions for invoking section 263 of the Income-tax Act were satisfied. Analysis: 1. The appeal was against an order dismissing the appellant's appeal related to the assessment year 1995-96 under section 263 of the Income-tax Act, where Cess paid on green leaf was allowed as a business expenditure by the Assessing Officer. However, a proposal under section 263 was sent due to a court ruling indicating otherwise. 2. The Commissioner directed the Assessing Officer to add back the Cess on green leaf allowed as a deduction, leading to the appeal. The appellant argued that the condition for invoking section 263 was not met, as subsequent decisions did not follow the initial court ruling. Additionally, the appellant contended that Cess should be considered a business expenditure in computing composite income from tea sales. 3. The High Court found that a previous ruling established that Cess paid on green tea leaf is deductible as a business expenditure. It was concluded that there was no valid ground for invoking section 263 based on the Assessing Officer's proposal, which relied on a court ruling not approved by the High Court. Therefore, the order under section 263 was set aside, and the Assessing Officer was directed to act accordingly. 4. The High Court allowed the appeal, highlighting that there would be no order as to costs in the given circumstances.
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