Set-aside proceedings cannot exceed remand scope; accrued repair liability is deductible under the mercantile system.

Set-aside proceedings must remain confined to the scope of the remand: a fresh addition for notional hire charges and late fee on leased trucks could not be made where the earlier direction was limited to ownership verification for depreciation, so that addition was unsustainable. Depreciation on the leased trucks required fresh adjudication because the ownership evidence had not been fully examined, and the matter was remitted. Repair expenditure for restoring hotel premises damaged in a bomb blast was allowable in the relevant year because the liability had accrued under the mercantile system and was not shown to be contingent. A licence-fee addition introduced for the first time in the remand proceedings was also set aside for reconsideration on merits.

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Issues: (i) Whether, in the second round of appeal, the appellate authority had jurisdiction to direct assessment of notional hire charges and late fee on trucks given on lease; (ii) whether the claim for depreciation on the leased trucks required fresh adjudication; (iii) whether the repair expenditure incurred for restoring hotel premises damaged in the bomb blast was allowable in the relevant year; and (iv) whether the addition towards licence fee receivable from ITC, made for the first time in set-aside proceedings, could be sustained.

Issue (i): Whether, in the second round of appeal, the appellate authority had jurisdiction to direct assessment of notional hire charges and late fee on trucks given on lease.

Analysis: The earlier appellate direction in the first round confined the set-aside proceedings to verification of ownership for deciding depreciation on the trucks. In the second round, the Assessing Officer's jurisdiction was limited to that narrow issue. The appellate authority could not travel beyond that remit and introduce a fresh source of income which was neither within the original assessment controversy nor within the scope of the earlier remand. The Department had other statutory remedies available if it considered the income taxable.

Conclusion: The direction to tax hire charges and late fee was without jurisdiction and no addition on that account was sustainable; this issue was decided in favour of the assessee.

Issue (ii): Whether the claim for depreciation on the leased trucks required fresh adjudication.

Analysis: The assessee relied on lease agreements and registration certificates to establish ownership, while the appellate order had not given a complete finding on that aspect. Since the factual foundation for the ownership test had not been fully examined at the appellate stage, the matter required adjudication on the existing record by the first appellate authority.

Conclusion: The depreciation issue was set aside to the appellate authority for fresh decision; no final allowance or disallowance was recorded at this stage.

Issue (iii): Whether the repair expenditure incurred for restoring hotel premises damaged in the bomb blast was allowable in the relevant year.

Analysis: The damage had already occurred, the liability to repair had arisen, the assessee had accepted responsibility to undertake the repairs, and the work was carried out under court supervision. The amount had been scientifically quantified, and the fact that payment had not been made in the year did not by itself defeat deduction, because liability incurred under the mercantile system is treated as paid for the relevant provisions governing business expenditure and repairs. A contingent or uncertain liability was not shown on the record.

Conclusion: The repair expenditure was allowable in the relevant year and the assessee succeeded on this issue.

Issue (iv): Whether the addition towards licence fee receivable from ITC, made for the first time in set-aside proceedings, could be sustained.

Analysis: The addition was introduced in the course of giving effect to the earlier limited remand, but the Assessing Officer was not competent to enlarge the scope of the set-aside proceedings by making a new addition on a fresh source of income. As the first appellate authority had not adjudicated the ground, the matter required reconsideration on merits at that level.

Conclusion: The addition was set aside and restored to the appellate authority for fresh adjudication; no final view was expressed on the merits.

Final Conclusion: The assessee obtained relief on the jurisdictional challenge to the truck hire income and on the repair expenditure claim, while the depreciation and licence-fee issues were sent back for reconsideration.

Ratio Decidendi: In set-aside proceedings, the taxing authority must remain strictly within the scope of the remand, and a liability that has accrued under the mercantile system is deductible even if it is not actually discharged in the year.

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