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Issues Involved:
1. Inclusion of interest awarded by the arbitrator in the contract receipts. 2. Deduction of expenses related to interest income. 3. Applicability of the Amnesty Scheme to the revised returns. 4. Validity of the assessment based on revised returns. Issue-wise Detailed Analysis: 1. Inclusion of Interest Awarded by the Arbitrator in the Contract Receipts: The primary issue was whether the interest awarded by the arbitrator, amounting to Rs. 12,07,349, should be included in the contract receipts for the assessment year 1985-86. The assessee initially included this interest in the contract receipts in the first revised return, but later argued that it should not be included due to pending litigation by KSEB challenging the award. The AO included the interest in the income, reasoning that the assessee followed a cash system of accounting and had received the amount. The CIT(A) deleted this addition, relying on the Supreme Court's decision in CIT vs. Hindustan Housing & Land Development Trust Ltd., which held that amounts under litigation do not reach finality and thus are not includible in income. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had lost the case in the Kerala High Court, which set aside the arbitrator's award, thus justifying the exclusion of the interest amount. The Tribunal, however, corrected the relief amount to Rs. 8,40,920, reflecting the actual addition made by the AO. 2. Deduction of Expenses Related to Interest Income: The second issue involved the deduction of expenses related to the interest income. The AO allowed a 20% deduction towards expenses, while the assessee claimed a 30% deduction. The Tribunal agreed with the assessee, citing the Supreme Court's decision in CIT vs. Govinda Choudhury & Sons, which treated interest income as part of business receipts. The Tribunal held that the interest income should be treated as part of contract receipts, and thus, the assessee's claim for a 30% deduction was upheld. 3. Applicability of the Amnesty Scheme to the Revised Returns: The assessee filed revised returns under the Amnesty Scheme, seeking waiver of interest and penalty. The AO accepted the first revised return and extended the benefits of the Amnesty Scheme, but the second revised return was filed after the assessment was completed. The Tribunal did not specifically address the applicability of the Amnesty Scheme to the second revised return, focusing instead on the substantive issues of interest inclusion and expense deduction. 4. Validity of the Assessment Based on Revised Returns: The assessment was initially completed based on the first revised return, which included the interest amount. The second revised return, filed later, sought to exclude the interest income due to pending litigation. The Tribunal upheld the validity of the assessment based on the first revised return but corrected the relief amount to reflect the actual addition made by the AO. The Tribunal emphasized that subsequent legal developments, such as the Kerala High Court's judgment, must be considered to ensure substantial justice. Conclusion: The Tribunal's judgment addressed the inclusion of interest awarded by the arbitrator, the deduction of related expenses, and the validity of assessments based on revised returns. The Tribunal upheld the CIT(A)'s decision to exclude the interest amount due to pending litigation and subsequent legal developments, corrected the relief amount, and allowed the assessee's claim for a 30% expense deduction. The judgment emphasized the importance of considering subsequent legal events to ensure substantial justice.
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