1993 (12) TMI 80 - AT - Income Tax

Issues Involved:

1. Erroneous and prejudicial order under Section 263 of the Income-tax Act, 1961.
2. Applicability of Section 2(22)(e) regarding deemed dividend.
3. Substantial interest in Jaiprakash Associates (P.) Ltd.
4. Disallowance of interest under Section 40(b) of the Income-tax Act, 1961.
5. Examination of repurchase or post-change firm.
6. Language and purport of Clause IV in the show-cause notice.
7. Examination of work-in-progress.
8. Opportunity to appellant for compliance.
9. Scope of issues in the impugned order.
10. Principles of natural justice and fair play.
11. Liberty to add or modify grounds.

Detailed Analysis:

1. Erroneous and Prejudicial Order Under Section 263:

The primary contention was that the order under Section 263 was not warranted in law. The Tribunal noted that the assessee filed a return for the assessment year 1986-87, which was revised and assessed after scrutiny. The Commissioner of Income-tax (CIT) scrutinized the assessment order and found it erroneous and prejudicial to the interests of revenue, issuing a notice and setting aside the assessment with directions to reframe it. The Tribunal found that the CIT's order was not justified as the Assessing Officer (AO) had already scrutinized the case thoroughly.

2. Applicability of Section 2(22)(e) Regarding Deemed Dividend:

The CIT held that the assessee firm held shares in Jaiprakash Associates (P.) Ltd. and received interest-free advances, which should be taxed as deemed dividend under Section 2(22)(e). The Tribunal, however, noted that the firm was not a registered shareholder in the books of the company, only the partners were. Citing Supreme Court decisions in Howrah Trading Co. Ltd., C.P. Sarathy Mudaliar, and Rameshwarlal Sanwarmal, the Tribunal concluded that the loan could not be deemed as dividend in the hands of the firm.

3. Substantial Interest in Jaiprakash Associates (P.) Ltd.:

The CIT also erred in holding that the appellant firm had a substantial interest in Jaiprakash Associates (P.) Ltd. The Tribunal found that the AO had examined the assessability of deemed dividend under Section 2(22)(e) and that the CIT's direction to reframe the assessment was not justified.

4. Disallowance of Interest Under Section 40(b):

The CIT disallowed interest paid to Smt. Rekha Dixit for the period before she became a partner, arguing that she shared profits for the whole year. The Tribunal found that Smt. Rekha Dixit was not a partner before 1-11-1985, and interest paid to her before that date was not disallowable under Section 40(b). The Tribunal emphasized that the sharing of profits was according to the partnership deed and did not make her a partner before 1-11-1985.

5. Examination of Repurchase or Post-Change Firm:

The CIT's finding that the AO had not examined whether the repurchase or post-change firm was the same or different was found to be incorrect. The Tribunal noted that the CIT failed to point out any specific facts or aspects that were not examined.

6. Language and Purport of Clause IV in the Show-Cause Notice:

The Tribunal found that the CIT had changed the language and purport of Clause IV of the show-cause notice while passing the order under Section 263, which was incorrect and contrary to the facts of the case.

7. Examination of Work-in-Progress:

The CIT held that the AO had not examined the aspect of work-in-progress. The Tribunal found that there was no evidence of any stone lying at the quarry site and that the CIT's direction to scrutinize this aspect was based on conjecture and surmises.

8. Opportunity to Appellant for Compliance:

The Tribunal noted that the CIT did not allow the appellant proper and sufficient opportunity to have its say or make necessary compliance of the reasons relied on by him in setting aside the assessment.

9. Scope of Issues in the Impugned Order:

The Tribunal found that the CIT erred in setting aside the assessment order instead of confining himself to the issues discussed in the impugned order.

10. Principles of Natural Justice and Fair Play:

The Tribunal held that the CIT's order was contrary to the principles of natural justice and fair play, as it was based on conjectures and surmises without proper evidence.

11. Liberty to Add or Modify Grounds:

The Tribunal allowed the appellant the liberty to add or modify any ground as the circumstances of the case may justify.

Conclusion:

The Tribunal concluded that the order passed by the CIT under Section 263 was not justified and allowed the appeal, restoring the order passed by the AO.

← Previous Next →