Law: Income Tax Act, 1922

Section: 42(2),66(2)

Income-tax Act (XI of 1922)----Ss. 42 (2) & 66 (2)--Reference--Undisputed finding of Income-tax Appellate Tribunal that there was no new material available before the Income-tax Officer to apply S.42 (2) to the case of assessee--Reference was rejected by the High Court. JUDGMENT SAEEDUZZAMAN SIDDIQUI, J.--There Department has referred the following three questions directly to the Court for decision under Section 66 (2) of the Income Tax Act: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that subsection (2) of Section 42 of the Income Tax Act was not applicable in this case? (2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that sub-section (1) of Section 42 of the Income Tax Act was applicable. (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs.7, 50,000?" The case relates to assessment year 1972-73. The Income Tax Officer, Companies Circle V issued a consolidated notice to assessee/respondent under Section 23 (3) of the Income Tax Act 1922 for the assessment years 1971-72, 1972-73 and 1973-74 calling upon them to show cause why provisions of Section 42 (2) of Income Tax Act should not be applied to their case. The case of the department is that the respondent/assessee has purchased raw material from its parent company which is a non-resident company at a price which was higher than the normal international price of the same. The Income Tax Officer accordingly, found that during assessment year 1972-73, the assessee made less than the ordinary profits on account of payment of higher price of raw material and added a sum of Rs.7,50,000 to the income for the above year under Section 42 (2) of Income Tax Act. The assessee/respondent challenged the order of Income Tax Officer before Appellate Assistant Commissioner who by his order dated 2-2-1976 agreeing with the order of his predecessor passed in the case of assessee/respondent deleted the addition of R§. 7,50,000. The view taken by the Appellate Assistant Commissioner was that Section 42 (2) of the Act did not apply to the case of…

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