2005 (9) TMI 246 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order under Section 143(3) of the IT Act, 1961.
2. Jurisdiction of the AO to issue a fresh notice under Section 143(2) after passing an appeal effect order under Section 250.
3. Disallowance of rent amounting to Rs. 11,40,000.
4. Levy of interest under Sections 234B and 234C.
5. Deletion of additions made by the AO on account of lowering prices of goods sold.
6. Computation of deduction under Section 80-I of the IT Act, 1961.

Detailed Analysis:

Issue 1: Validity of the Assessment Order under Section 143(3)
The assessee contended that the assessment order passed under Section 143(3) was void ab initio. The CIT(A) upheld the assessment order. The Tribunal noted that the assessment was initially completed on January 30, 1996, and the CIT(A) set aside the order for further examination of certain issues. The AO passed an appeal effect order under Section 250 on March 3, 1997. However, a fresh notice under Section 143(2) was issued, and another assessment was completed on February 3, 1999. The Tribunal concluded that the second order was without jurisdiction and unlawful as the AO's jurisdiction was ousted once the appeal effect order was passed on March 3, 1997.

Issue 2: Jurisdiction of AO to Issue Fresh Notice under Section 143(2)
The Tribunal examined whether the AO could pass the appeal effect order in more than one part. It was concluded that no specific procedure was provided in the Act or Rules for carrying out the appeal effect. The Tribunal held that the AO is duty-bound to pass an appeal effect order in respect of issues that have become final and raise fresh demand or issue a refund order accordingly. The practice of passing separate appeal effect orders was deemed practical and convenient for both the Revenue and the assessee. The Tribunal rejected the contention that piecemeal assessment is not possible, stating that the AO performs two functions: carrying out directions of the appellate authority and re-examining issues set aside for fresh examination.

Issue 3: Disallowance of Rent Amounting to Rs. 11,40,000
The AO disallowed the rent on the grounds that the premises were not used for business purposes, and the CIT(A) confirmed this disallowance. The Tribunal noted that the premises were located in an industrial colony and were actually taken on rent. It was held that even passive use of the premises is sufficient for allowing rent as a business expenditure. The Tribunal set aside the CIT(A)'s order and deleted the addition, emphasizing that the premises were occupied and used for business purposes, and the assessee had the right to change its business plans.

Issue 4: Levy of Interest under Sections 234B and 234C
The assessee argued that interest under Sections 234B and 234C could not be levied as the set-aside proceedings were in the nature of reassessment. The Tribunal, relying on the Supreme Court's decision in CIT vs. Anjum M.H. Ghaswala and the Bangalore Bench decision in Smt. Kamakshidevi Avaru, held that the levy of interest is mandatory and consequential. The AO was directed to levy interest as per the provisions of the Act.

Issue 5: Deletion of Additions Made by AO on Account of Lowering Prices of Goods Sold
In ITA No. 931/Del/2000 and ITA No. 932/Del/2000, the Revenue challenged the deletion of additions made by the AO on account of lowering prices of goods sold to M/s Dabur India Ltd. The Tribunal noted that this issue was covered in favor of the assessee by the order of the Tribunal for the assessment year 1992-93. Therefore, the Tribunal decided this issue in favor of the assessee and dismissed the Revenue's appeals.

Issue 6: Computation of Deduction under Section 80-I of the IT Act, 1961
The assessee contended that the CIT(A) failed to appreciate the facts in proper perspective in upholding the wrong computation of deduction under Section 80-I. The Tribunal found that the CIT(A) had not adjudicated the computation part of the deduction in his order. Therefore, the issue was set aside to the file of the CIT(A) with directions to adjudicate the issue after providing adequate opportunity to the assessee.

Conclusion:
The Tribunal partly allowed the assessee's appeal in ITA No. 830/Del/2000 by quashing the second assessment order and deleting the disallowance of rent. The appeals in ITA Nos. 831/Del/2000 and 832/Del/2000 were dismissed. The Tribunal dismissed the Revenue's appeals in ITA Nos. 931/Del/2000 and 932/Del/2000, and the cross-objections were also dismissed. The appeal in ITA No. 3931/Del/1999 was dismissed, and the appeal in ITA No. 1429/Del/2000 was allowed for statistical purposes.