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TMI Blog2003 (3) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent disallowances, etc. and after considering the reply submitted by the assessee the CIT passed impugned order by which he has recomputed the income of the assessee to the extent of Rs. 63,92,000 making out different disallowances and additions. At the very outset the learned counsel referring to the impugned order passed by the learned CIT submitted that the learned CIT had recomputed deduction under s. 80HHC of the Act and also made separate computation of total income by making disallowances and also making different additions on account of undisclosed investment in stock, etc. and directed the AO to modify the assessment order under s. 143(3) of the Act and to issue demand notice and challan as well as penalty notice. The contention of the learned counsel is that learned CIT had not set aside the assessment order with direction to AO to reframe the assessment order but he has already completed the assessment order and AO was supposed to carry out the necessary direction and to issue demand notice and challan as per income computed by the learned CIT. The learned counsel submitted that different disallowances and additions made by the learned CIT are being challenged throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and in such circumstances the interest income would be of the nature of business income, eligible for tax benefit under s. 80HHC of the Act. The learned counsel placed reliance on the ratio of decision of Hon'ble Bombay High Court in the case of CIT vs. Punit Commercial Ltd. (2000) 163 CTR (Bom) 594 : (2000) 245 ITR 550 (Bom); as also the orders of the Tribunal in the case of Anand & Co. vs. Asstt. CIT (1995) 54 ITD 82 (Cal) and ITO vs. General Supplies Agencies (1993) 66 Taxman 108 (Coch)(Mag). The learned counsel also submitted that no doubt the contrary decisions have also been rendered by different High Courts and different Benches of the Tribunal and he was fair enough to refer the contrary view laid down in the cases of CIT vs. Ravi Ratan Exports (P) Ltd. (2000) 246 ITR 443 (Bom), Smt. T.C. Usha vs. Dy. CIT (1999) 65 TTJ (Coch) 826 : (1999) 70 ITD 279 (Coch), Synthite Industrial Chemicals Ltd. vs. Dy. CIT (1999) 64 TTJ (Coch) 494, Eicher Goodearth Ltd. vs. Dy. CIT (2001) 71 TTJ (Del) 841 and ITO vs. Smt. Kalavati R. Agarwal (2001) 71 TTJ (Mumbai) 792. 8. It was further contended by the learned counsel that FDRs were placed with the banks as marginal money for securing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 (Bom); as also on the orders of Tribunal in the case of Super Cassettes Industries (P) Ltd. vs. CIT (1992) 41 ITD 530 (Del). 12. In reply, the learned Departmental Representative submitted that the proceedings under s. 263 of the Act could be taken by the CIT to modify/revise the assessment even in respect of debatable issue. The learned Departmental Representative referred to the decision of the Gujarat High Court in the case of CIT vs. M.M. Khambhatwala (1992) 198 ITR 144 (Guj) in support of the contention. On the issue of netting of interest, in terms of cl. (baa) of Explanation to s. 80HHC of the Act, the learned Departmental Representative forcefully contended that in terms of said clause, exclusion has to be of the gross interest received, without being reduced by any expenditure. The learned Departmental Representative relied upon the contrary decisions on the issue, very fairly pointed out by the learned counsel for the appellant at p. 2 of the broad propositions. In addition, our attention was also drawn to the Supreme Court decision in the case of CIT vs. Dr. V.P. Gopinathan (2001) 166 CTR (SC) 504 : (2001) 248 ITR 449 (SC). 13. In rejoinder, the learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 63 TTJ (Ahd) 409 : (1999) 106 Taxman 32 (Ahd)(Mag); and (iv) Indian Sugar & Gen. Industry Export & Import Corp. Ltd. vs. Dy. CIT (2002) 121 Taxman 305 (Del)(Mag). 17. The learned Departmental Representative, on the other hand, supported the order of the CIT and placed reliance on the following contrary decisions: (i) IPCA Laboratories Ltd. vs. Dy. CIT (2001) 170 CTR (Bom) 568 : (2001) 251 ITR 401 (Bom); (ii) Krislar Diesel Engines (P) Ltd. vs. Asstt. CIT (2000) 69 TTJ (Mad) 46 : (2000) 74 ITD 414 (Mad); and (iii) IPCA Laboratories Ltd. vs. Dy. CIT (2001) 70 TTJ (Mumbai) 991 18. In rejoinder, the learned advocate submitted that the decision of the Bombay High Court in the order of IPCA Laboratories Ltd. vs. Dy. CIT relied upon by the learned Departmental Representative does not cover the controversy since in that case there was no issue as raised in the present appeal. With regard to the other contrary decisions referred to by the learned Departmental Representative, the learned counsel fairly admitted the existence of divergent views and supported his alternative arguments that in respect of debatable issue, the jurisdiction of CIT under s. 263 of the Act was ousted. 19. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quashed. 23. In ground of appeal No. 4, the assessee has challenged addition of Rs. 48,98,127 held by the CIT to be the excess stock funded out of undisclosed income. The CIT computed the value of the closing stock at Rs. 3,03,62,095 as against Rs. 3,52,58,921 recorded in the books of accounts. The difference of Rs. 48,98,127 was added by the CIT in the impugned order holding that the same represented excess stock funded out of undisclosed income. 24. The learned counsel for the assessee pointed out that the working of closing stock adopted by the CIT at Rs. 3,03,62,095 is erroneous. It was submitted that there is no difference in quantity of stock worked out by the CIT and that declared by the assessee. There was no difference both regards as quantity and valuation of the following stock: (a) Gold loan stock (b) Local gold purchase (c) Local jewellery purchase 25. The learned advocate invited our attention to the reconciliation at p. 1 of the paper book and submitted that the difference arose on account of the following: (i) The CIT has ignored the value of silver moulds capitalized by the assessee during the relevant previous year amounting to Rs. 40,48,860 and instead has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in domestic as well as in international market. In view of the aforesaid, it is evident that the preparation of silver moulds involves a complicated process. For the purpose of preparing these moulds, the appellant had imported machinery in 1995 and had employed craftsmen, who besides making jewellery were also involved in designing moulds. Apart from that other expenses like electricity, depreciation of the machinery, etc. were some of the expenses which were taken into account in arriving at the value of moulds. Although no separate account was maintained to detail the cost incurred in preparation of the moulds, nevertheless the cost actually incurred is out of those various expenses debited in the books of account under wages, depreciation, electricity expenses, etc. On the facts of the case, the moulds forming part of closing stock of the relevant previous year are out of capitalization of expenses incurred in the last two-three years and there is no excess stock as alleged by the CIT, warranting any addition." 27. The appellant's counsel submitted that even if the valuation of closing stock is held to be inflated, no prejudice could be said to have been caused to the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT had made an addition of Rs. 48,94,127 to the income of the appellant for alleged excess stock funded out of undisclosed income and had not set aside the order on ground of non-application of mind by the AO. It was vehemently argued that non-application of mind by the AO not being a ground taken by the CIT to revise the assessment, the learned Departmental Representative was not correct in seeking to support the order of the CIT on that ground. Our attention is drawn to the following decisions in support of the above. (i) CIT vs. Jagadhri Electric Supply & Industrial Co. (1981) 25 CTR (P&H) 94 : (1983) 140 ITR 490 (P&H); and (ii) Somdatt Builders (P) Ltd. vs. ITO (1989) 29 ITD 495 (Cal). 32. We have carefully considered the arguments and perused the records. We find that the CIT has computed the value of closing stock at Rs. 3.03 crores as against Rs. 3.52 crores shown by the assessee in the P&L a/c. The CIT had not raised any query to the assessee regarding the valuation of silver moulds shown by the assessee before concluding that the assessee had excess stock funded out of alleged undisclosed income. It is noteworthy that there is no difference in quantity in the workin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evising the assessment, as held in the following cases relied upon by the counsel of the assessee: (i) CIT vs. Jagadhri Electric Supply & Industrial Co. (ii) Somdatt Builders (P) Ltd. vs. ITO 37. The cumulative result of findings above is that addition directed to be made by the learned CIT to the extent of Rs. 48,98,127 on account of excess stock as undisclosed income is without any basis as the assessee had shown higher closing stock and suffered the tax. The said addition was not warranted and the order of the learned CIT on that account is not sustainable in the eye of law as the order to that extent is without any basis and the direction for making addition stands quashed. 38. The CIT in the order under s. 263 has directed the initiation of penalty proceedings under s. 271(1)(c) of the Act. The learned counsel referred to the following decisions including of the jurisdictional High Court, which have held that the CIT cannot in revision proceedings under s. 263 of the Act direct the AO to initiate penalty proceedings under the said section: (i) CIT vs. Nihal Chand Rekyan (1999) 156 CTR (Del) 59 : (2000) 242 ITR 45 (Del) (ii) Addl. CIT vs. Sudarshan Talkies (1993) 111 CTR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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