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TMI Blog1996 (7) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... ks and that being in respect of capital borrowed, it is allowable under section 36(1)(iii) of the Act, in accordance with the decision of this court in CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715, The Assessing Officer, in exercise of the powers under section 143(1)(a) of the Act sent an inti mation dated January 27, 1995, accepting the return as it is, without making any adjustments since all the claims were prima facie patently admissible. A copy of the said order is at annexure " B " to the petition. It appears that notice under section 148 of the Act has been issued on February 14, 1995, in respect of the assessment year 1993-94 stating that income chargeable to tax has escaped assessment and the assessee was called upon to submit the return, vide annexure " C " to the petition. As notice under section 148 was issued requiring the assessee to file return of income for the assessment year 1993-94, the same was filed, with a request to furnish a copy of the reasons recorded for issuing notice under section 148 of the Act. It appears that the assessee also reminded about furnishing reasons on October 12, 1995, vide annexure " F ". The request was rejected, vide lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the affidavit of the opponent, and in the absence of such ground, there is no justification in reopening. The assessee is engaged in the manufacturing of cloth. It appears that new air-jet looms were purchased with a view to manufacture fabrics having width of 56 inches. The old machines were capable of producing fabrics having width of 36 inches to 44 inches only. As it was not possible to manufacture fabrics having width of 56 inches with old looms, new air-jet looms were purchased. It appears that this has led the Assessing Officer to believe that the assessee has purchased the machinery for the purpose of new business. It thus appears that modernisation has been considered by the Assessing Officer as a new business. It is not disputed that the assessee-company, having its manufacturing activity at Ahmedabad, is engaged in weaving and spinning, and manufacturing varieties of textile cloth. It is clear that the business is the same, the administration is the same, the funds are common, the staff is the same, persons in the management are the same and the output would be textile fabrics. Thus, it is clear that it would not be a new business. In the case of CIT v. Prithvi I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Distillery Ltd. v. CIT [1971] 79 ITR 589 (SC), the assessee-company owned a distillery and had acquired a sugar refinery, obtained on lease a sugar and gur refining company with effect from June 1, 1945. During January 29, 1946, to April 23, 1946, the assessee-company purchased 41,300 shares of that company and sold them, on April 30, 1947, at a loss. After setting off this loss against the income for the assessment year 1948-49, there was a balance of the loss and the question was whether the appellant could carry forward the unabsorbed loss in the sale of the shares and set it off against the income from sugar manufacturing and distillery for the assessment year 1949-50 under section 24(2) of the Act of 1922. The Tribunal found that : (i) there was a single trading and profit and loss account and sales of spirit, sugar and molasses as well as stocks and shares appeared in that account ; (ii) the share transaction as well as the business had been dealt with by a common organisation ; (iii) the business of the company as well as the transaction in shares were attended to as part and parcel of the business of the appellant ; and (iv) a common fund was utilised both for business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not recover outstanding dues of Rs. 34,617 and the said amount was written off as bad debt in the year of account. In the assessment, the assessee claimed as a deduction under section 37, the sum of Rs. 9,603 paid as retrenchment compensation and it also claimed as a deduction under section 36(1)(vii), the amount of Rs. 34,617 by way of bad debts. The Income-tax Officer, on appeal, the Appellate Assistant Commissioner and on further appeal, the Income-tax Appellate Tribunal rejected both the claims. The Tribunal held that since retrenchment compensation was paid and bad debts were incurred in businesses totally distinct from the business carried on by the assessee, the deductions could not be allowed in the assessment of the assessee, relying upon the following facts and circumstances : (i) the several businesses were widely different in nature and they covered both manufacturing and trading activities ; (ii) the different businesses were carried on at different places ; (iii) each business had its own staff including different managers and the staff was not interchangeable. (iv) inter se transactions between the various businesses were separately and meticulously rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also commenced business of cinematographic films. The theatre was built in 1962 and was run by the assessee until July 31, 1965, when it was transferred to another firm. For the years during which the assessee exhibited films in the said theatre, the interest paid on the loans obtained for constructing it were allowed by the Revenue as a deduction under section 36(1)(iii) of the Act of 1961. The Income-tax Officer declined the deduction for the assessment years 1967-68, 1968-69 and 1969-70 on the ground that the business of exhibition of films in the said theatre was no longer in existence. The Appellate Assistant Commissioner allowed the deduction. The Tribunal found that there was no dispute that for the construction of theatre, the assessee has made heavy borrowings and the interest on such borrowings has been allowed by the Revenue as a deduction as the assessee was running the said theatre as its own business ; that the assessee had admittedly paid the interest in question for the years under appeal in respect of the loans obtained for the purpose of investing in the business of exhibition of films. The Tribunal also found that the business carried on by the assessee was as je ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision, he need not be questioned. Suffice it to say that the assessee was manufacturing cloth of a particular width and if machinery is purchased for the purpose of manufacturing cloth having larger width, it cannot be said that it is a new business. Learned counsel for the Revenue contended that this court should not interfere in a matter like this at this stage because only a notice is issued and it is open for the assessee to appear before the authority in response to the notice. As against this, Mr. Shah vehemently submitted by pointing out that the officer is acting without jurisdiction and it is the duty of this court to interfere. He has drawn our attention to the decision of the apex court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, which reads as under : " .... though the writ of prohibition or certiorari would not issue against an executive authority, the High Courts had power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjected, or was likely to subject, a person to lengthy proceedings and unnecessary harassment, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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