1982 (9) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Validity of initiation of proceedings u/s 148 of the I.T. Act, 1961.
2. Applicability of s. 41(1) of the I.T. Act, 1961.
3. Jurisdiction of the ITO to reopen assessments based on audit objections.
4. Whether the refund of excise duty constitutes taxable income.

Summary:

1. Validity of initiation of proceedings u/s 148 of the I.T. Act, 1961:
The petitioner challenged the initiation of proceedings u/s 148 of the I.T. Act, 1961, on the grounds that the audit objection could not constitute "information" within the meaning of s. 147(b) of the Act. The court found that the initiation of proceedings under s. 148 for the assessment years 1974-75 and 1975-76 was without jurisdiction and quashed the notices and subsequent proceedings.

2. Applicability of s. 41(1) of the I.T. Act, 1961:
Section 41(1) of the Act deals with receipts deemed to be income under the head "Business or profession." The court observed that the allowance or deduction in the present case was not in respect of an expenditure or trading liability. Since the liability had not been finally extinguished and appeals were pending before the Supreme Court, there was no remission or cessation of the liability to attract s. 41(1).

3. Jurisdiction of the ITO to reopen assessments based on audit objections:
The petitioner contended that the audit objection could not constitute "information" for reopening assessments. The court noted that the ITO's action was based on an audit objection and concluded that the reopening of assessments on this basis was without jurisdiction.

4. Whether the refund of excise duty constitutes taxable income:
The court found that the refund of excise duty deposited in the court was not a reimbursement of expenditure but a refund of a security deposit. Since the liability had not ceased and was still under judicial scrutiny, the refund did not constitute taxable income under s. 41(1).

Conclusion:
The court allowed the writ petition, quashing the impugned notices and proceedings initiated u/s 148 of the I.T. Act, 1961, for the assessment years 1974-75 and 1975-76, and held that the refund of excise duty did not constitute taxable income under s. 41(1) of the Act.