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TMI Blog1979 (10) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... records and the enquiries made by the ITO in the course of assessment proceedings, the ld. CIT grossly erred in holding that the orders of the ITO is erroneous and prejudicial to the interest of the Revenue. 3. The impugned order is without jurisdiction, without material and contrary to the material on record. 4. The impugned order is bad in law having been passed without giving opportunity of being heard. 5. The notice dt. 20th Aug., 1978 being vague and without material is bad in law." Out of these ground No. 4 has not been pressed. 2. The facts briefly are that the assessee is a partnership concern deriving income from sale of country liquor. For this purpose it had taken licence from the Excise Authorities. The business was carried on at Lehar Mandi and Gole Bazar and its subsidiary village branches. The assessment under appeal is for the year 1976-77 for which the relevant previous year is financial year 1975-76. Net income was shown by the assessee at Rs. 4,16,780. One of the items debited in the profit and loss account was Rs. 6,38,250 with the narration "security forfeited a/c." ITO noticed the assessee's claim in this regard and in pursuance of the discussion wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted by the ITO to the Commr. on the 20th instant. On going through the record, the ld. Commr. found that the said amount of Rs. 6,38,250 representing security forfeited was allowed as deduction by the ITO in the computation of the assessee's total income without making enquiry regarding the nature of the amount and without properly examining the admissibility of the claim under the provisions of the IT Act, 1961. The ld. Commr. therefore, came to the conclusion that the assessment order passed by the ITO was erroneous and also prejudicial to the Revenue and hence proceedings were initiated under s. 263 by issuing show cause notice which was served on the assessee on the afternoon of 21st of August. The date of hearing was fixed on the 26th August but as 26th August happened to be a public holiday, the hearing was advanced to the 25th August. The assessee requested for adjournment which was, however, rejected. AAC telegraphic request for adjournment was made by Sri N.M. Ranka, Advocate, but the same was also rejected. On the 25th Aug., itself the ld. Commr. Passed the order setting aside the assessment with the direction to the ITO to make fresh assessment in accordance with la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Addl. CIT vs. Arvind Mills Ltd(2); Supreme Court decisions in Ram Chander Shivnarain(3), Season J. David Co. Pvt. Ltd. vs. CIT(4), and another Supreme Court decision in Poona Electricity Supply Co. Ltd. vs. CIT(5), and Full Bench decision of the M.P. High Court in Addl. CIT vs. Kuber singh Bhagwandas(6). 5. The ld. Depl. Representative, on the other hand, supported the order of the ld. Commr. It was stated emphatically that there was no discussion at all in the assessment order with regard to the claim of the assessee in respect of Rs.6,38,250 and, therefore, the ld. Commr, rightly held that he claim of the assessee had been allowed by the ITO without proper enquiry. Proceeding further it was urged that in law also the claim was not admissible as the payment represented penalty for infraction of the law. In support to this proposition reference was made to Full Bench decision of the Allahabad High Court in the case of Saraya Sugar Mills Pvt. Ltd. vs. CIT(7). 6. We have considered the facts and the rival submissions. We have also gone through the authorities cited on both sides. It seems that for financial year 1975-76 which is the previous year for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order a specific reference has been made by the ITO to this amount. This being the position, it cannot be said that claim was allowed by the ITO without considering the nature of the amount paid and its admissibility under the IT act, 1961. It is true that the ITO did not state in the assessment order in detail the facts and the basis for allowing the assessee's claim but we are unable to agree with the ld. Commr. that the ITO allowed the claim without enquiry. We cannot agree with the ld. Commr. that the order passed by the ITO was erroneous and also prejudicial to the Revenue. The ld. Commr. in our view, had no jurisdiction to pass the order under s. 263. 7. On the view that we have taken above, the assessee's appeal could be allowed straight away. Wee would, however, like to add, as there has been discussion before us by reference to judicial authorities, that even in law the claim was admissible. We find that in asst. yr. 1977-78 the proceedings were initiated under s. 263 under absolutely identical circumstances. The ld. Commr. applied his mind and on the basis of the material placed before him by the assessee, he felt that the claim had been rightly allowed and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was held to be inadmissible as it was a penalty for breach of the law. This case obviously cannot be applied to the present case. The nature of the payment in the present case is entirely different. As already stated, ti arose directly from the business and was made in the course of business operations. The payment was made in the interest of the business. In the Allahabad case the interest paid was for failure to pay the tax within the prescribed time. Such payment could have no connection with the business. Moreover, licence itself. It was the assessee's option to lift the country liquor or to pay the deficit. The assessee choose to pay the deficit in order to avoid heavy loss which would have arisen if the full quantity of liquor had been lifted since the price had increased considerably. There was no question of any infraction of the law of breach of public policy. 9. In our view, on facts, the ld. Commr. erred in holding that the claim of the assessee was allowed without proper enquiry. As stated, the ITO had before him sufficient material to indicate to him the nature of the payment and also to consider allowability under the IT Act. If the ld. Commr. felt that he ITO had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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