Law:

Section:

Section 41(1), read with section 263, of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment year 1983-84 - Assessee-company had set up a plant for manufacture of rayon-grade wood pulp - Raw material required for plant consisted of forest produce, namely, bamboo, reed and eucalyptus - An agreement was entered into between assessee-company and State Government for supply of raw material, including eucalyptus at certain rate - However, thereafter, State Government, in pursuance of Kerala Forest Produce (Fixation of Selling Price) Act, issued notifications fixing prices of forest produce - Notifications resulted in additional liabilities of certain amount to assessee - Claim in regard to those liabilities was allowed into regular assessments on basis of provision made by assessee - Validity of those notifications was questioned by assessee in a writ petition filed before Kerala High Court - By a dated 15-4-1981, a Division Bench of Kerala High Court allowed petition filed by assessee and set aside impugned notifications - As a consequence of of Kerala High Court, liability of assessee for aforesaid three years stood reduced by a corresponding amount which was taxed in assessment year 1983-84 - Commissioner, in exercise of powers under section 263, held that when of High Court was delivered in early part of accounting year relevant to assessment year 1982-83, liabilities, which ceased as a result of , ought to have been written back in assessment year 1982-83 - Whether, on facts, Assessing Officer had taken a possible view and, therefore, Commissioner was not justified in exercising power under section 263 - Held,yes FACTS Pursuant to its policy to attract industrial investment in the State, the Government of Kerala, in 1958, granted concession to the assessee to fall and remove bamboos from the Nilamber valley for conversion into rayon- grade wood pulp. Agreements were entered into between the assessee and the Government of Kerala. The assessee-company purchased three lakh acres of private forest and planted eucalyptus for use as raw material on an undertaking by the Government not to acquire the forest for a period of sixty years.…

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