1995 (7) TMI 133 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notices issued under Section 263.
2. Adequacy of opportunity for the assessees to be heard.
3. Assessment of profits under Section 44AC of the IT Act.
4. Inclusion of Nirgam Mulya and octroi expenses in the purchase price.
5. Taxation of income from the sale of empty bottles.

Detailed Analysis:

1. Validity of Notices Issued Under Section 263:
The assessee argued that the notices issued under Section 263 were bad in law due to insufficient time for preparation. However, the Tribunal found no substance in this objection. The notices were issued on 16th March 1990, and the assessees submitted detailed replies, indicating that they had ample time to prepare their defenses.

2. Adequacy of Opportunity for the Assessees to be Heard:
The assessee contended that they were not given sufficient opportunity to be heard before the CIT. The Tribunal rejected this argument, noting that the CIT had considered all aspects of the arguments advanced by the assessees in their written replies. The detailed orders indicated that the assessees were given ample opportunity to present their cases.

3. Assessment of Profits Under Section 44AC of the IT Act:
The Tribunal examined whether the assessments made by the AO were erroneous and prejudicial to the interests of Revenue. The AO had followed the provisions of Section 44AC, as instructed by the CBDT and other authorities. The Tribunal concluded that the assessments were not erroneous and prejudicial to the interests of Revenue, as they were made in accordance with the relevant provisions of law and instructions issued by the CBDT.

4. Inclusion of Nirgam Mulya and Octroi Expenses in the Purchase Price:
The CIT argued that the bid money (Nirgam Mulya) and octroi expenses should have been included in the purchase price. The Tribunal noted that the Chief CIT had issued instructions that Nirgam Mulya should not form part of the purchase price for the purpose of Section 44AC. The Tribunal found that the AO had correctly followed these instructions, which were in conformity with the circulars and instructions of the CBDT. Regarding octroi expenses, the Tribunal concluded that these were not includible in the purchase price, as octroi is payable to municipal authorities and not for obtaining the goods.

5. Taxation of Income from the Sale of Empty Bottles:
The CIT contended that the income from the sale of empty bottles should have been taxed under the head "income from other sources." The Tribunal found that the income from the sale of empty bottles had been well accounted for in the audited P&L account. The computation of purchase price included the sum spent on the purchase of empty bottles, and no separate income from the sale of empty bottles was includible under Section 44AC.

Conclusion:
The Tribunal concluded that the assessments made by the AO were not erroneous and prejudicial to the interests of Revenue. The AO had followed the provisions of Section 44AC and the instructions issued by the CBDT and the Chief CIT. The Tribunal cancelled the impugned orders and allowed the appeals.