2003 (2) TMI 153 - AT - Income Tax

Summary

Issues Involved:
1. Withdrawal of Revenue's appeals.
2. Validity and timeliness of the cross-objections (CO) filed by the assessee.
3. Whether the income of the firm Intercorp Associates (ICA) should be included in the assessee's income.
4. Whether the CIT(A)'s direction to redo the assessment considering seized materials was appropriate.

Detailed Analysis:

1. Withdrawal of Revenue's Appeals:
The main ground of appeal by the Revenue was against the setting aside of the assessment with a direction to redo the same after examining the search materials and affording an opportunity to the assessee. During the hearing, the Departmental Representative sought leave to withdraw the appeals since the Assessing Officer (AO) had already passed orders subsequent to the CIT(A)'s direction. The appeals were dismissed as not pressed.

2. Validity and Timeliness of the Cross-Objections (CO):
The Departmental Representative argued that the CO should not be entertained because there was no pending appeal and it was belated. The assessee's counsel submitted that COs are as good as appeals and can be pressed even in the absence of an appeal before the Tribunal, citing provisions of Section 253(4) and relevant case law. The Tribunal agreed with the assessee's counsel, stating that a CO is to be disposed of as if it is an appeal presented. Regarding the delay, the Tribunal found that the grounds of appeal were furnished to the assessee on 22nd May 2002, and the COs were filed on 24th May 2002. The Tribunal condoned the delay, citing the Supreme Court's decision in Collector, Land Acquisition vs. Mst. Katiji & Ors., which emphasized a liberal approach in condoning delays to ensure substantial justice.

3. Inclusion of ICA's Income in the Assessee's Income:
The Tribunal examined whether the income of the firm ICA should be included in the assessee's income. The assessee argued that the revised return for AY 1986-87 was not valid and that the assessment was based on a settlement petition that was not binding. The assessee also contended that ICA was a valid partnership firm and not a sham entity. The Departmental Representative argued that the assessee had voluntarily filed returns accepting ICA's income in his hands and that the assessee could not retract from his admission. However, the Tribunal found that the assessee had consistently shown ICA as the correct entity liable to tax and that the firm was a valid partnership entity with its own assessments and legal proceedings. The Tribunal held that the income of ICA could not be taxed in the hands of the assessee and allowed the assessee to retract from his earlier admission.

4. CIT(A)'s Direction to Redo the Assessment:
The Tribunal found that the CIT(A)'s direction to reframe the assessment considering seized material was not appropriate as no seized material pertained to the assessee but only to ICA. The Tribunal expunged the direction to redo the assessment and held that the income of ICA, including its divisions and credit entries, should be excluded while computing the income of the assessee for the relevant assessment years. The Tribunal also directed that any other income earned individually by the assessee would be retained and that interest under Sections 139(8) and 215/217 would be charged as per law.

Conclusion:
The appeals of the Revenue were dismissed, and the cross-objections of the assessee were partly allowed. The Tribunal held that the income of ICA should be excluded from the assessee's income and expunged the CIT(A)'s direction to redo the assessment.