2002 (6) TMI 161 - AT - Income Tax

Summary

Issues:
Appeals against CIT order under section 263 for assessment year 1995-96.

Analysis:
The appeals were filed against the order of the CIT under section 263 for the assessment year 1995-96. The AO had allowed 'cess' on green leaf paid to the Government by the assessee-company as business expenditure during the assessment. The CIT contended that this allowance was erroneous and prejudicial to the interest of Revenue based on a decision by the Gauhati High Court. The appellants, engaged in the business of growing, manufacturing, and selling tea, claimed the cess paid as a deductible expenditure under the Central Act. The case involved the apportionment of income between Central income-tax and Assam Agrl. IT. The ITAT considered the arguments presented by the authorized representative and the case laws cited by the AO and CIT(A) in reaching a decision.

The ITAT analyzed the nature of the business of growing, manufacturing, and selling tea, highlighting that it involves both agricultural and non-agricultural processes, leading to a mix of agricultural and non-agricultural income. Referring to previous Supreme Court decisions, the ITAT emphasized that the provisions of the Central Act and Central Rules govern the computation of income for assessees engaged in tea business. The green leaf cess paid was considered an expenditure incurred wholly and exclusively for the purpose of the business and thus deemed allowable.

The ITAT disagreed with the CIT's reliance on the Gauhati High Court decision, stating that it was not applicable to the present case. The ITAT highlighted that the deduction of green leaf cess was allowable under the Central income-tax assessment, and the Gauhati High Court decision was specific to the facts of that case. The ITAT emphasized that the CIT had misapplied the decision without considering the context and the specific provisions of the Central Act applicable to the case.

In conclusion, the ITAT found no merit in the CIT(A)'s orders and noted the absence of a clear allegation by the CIT that the AO's order was erroneous and prejudicial to the interest of Revenue. The ITAT held that the CIT should have independently concluded that the AO's order was indeed erroneous and prejudicial to the Revenue's interest before issuing an order under section 263. As a result, the appeals filed by the assessee were allowed, overturning the CIT's order.