TaxTMI 
TaxTMI 
1986 (11) TMI 76
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.... include the said company and its successor or successors and assigns) of the first part, and the Gujarat Electricity Board, a statutory corporate body constituted under s. 5 of the Electricity (Supply) Act, 1948 having its head Office at Baroda in the State of Gujarat hereinafter called 'The Purchaser" (which expression shall unless repugnant to the context or meaning thereof mean and include the said Gujarat Electricity Board and its successor or successors) of the second part. Whereas the initial period of the licence granted to the Vendor expired on 14th Oct., 1974 and whereas the Purchaser served a notice to the Vendor in exercise of the powers vested in it under s. 6 of the Indian Electricity Act, 1910 requiring the vendor to sell its undertaking to it on the expiry of its initial period of licence, And Whereas the Vendor agreed to hand over on the midnight of 14th Oct., 1974 the possession of its undertaking's assets as shown in the attached schedule. Now this agreement witness and it is hereby agreed by and between the parties as under: 1. The Vendor shall sell, and the Board shall purchase the assets of the Vendor on the terms and conditions and at or for the pric....
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....fter deduction from Rs. 13 lakhs the sum corresponding to consumers, contribution and statutory reserves as per last Govt. Audit Report which is for the financial year 1972-73 and after taking into account the amount of Rs. 3,40,000 and Rs. 75,000 already paid as on account on taking over of the possession of all the assets as per the joint inventory on the day of vesting viz, 14th Oct., 1974. (b) 10 per cent of the sale price plus interest as admissible under the Indian Electricity (Gujarat) Amendment Act, 1974 after the final Govt. Audit Report as on the date of vesting i.e. upto 14th Oct., 1974 is received and the Sale Receipt for the assets purchased is passed: Provided that out of the first instalments of the aforesaid payments, the liability in respect of any charge, mortgage or similar obligation on the Vendor shall be first deducted and paid by the Purchaser direct to the persons holding such charge, mortgage or similar obligation and such payments shall be deemed to be payments having been made to the Vendor as sale price of the Works taken over by the Purchaser. Provided further that out of any of the aforesaid payment, capital contribution of consumers shall be ....
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.... the licence of every licence. Now Para III of the Sixth Schedule provides for the creation of a reserve to be called "Contingencies Reserve". Para V(I) of the Schedule provides that the Contingencies Reserve shall be not drawn upon during the currency of the licence except to meet certain charges as the State Government may approve. What is more important is that para V(2) provides that on the purchase of the undertaking, the contingencies Reserve shall be handed over to the purchaser and maintained as such Contingencies Reserve. Para VI(a) of the Sixth Schedule provides for the creation of a reserve to be called "Development Reserve". It is further provided that the Development Reserve shall be available only for the investment in the business of the electricity supply of the undertaking and that on the purchase of the undertaking, the Development Reserve shall be handed over to the purchaser and maintained as such development reserve. It is clear from the Provisions of the Sixth Schedule that the balance in the Contingencies Reserve and Development Reserves accounts were paid by the assessee to the purchaser in discharge of statutory obligation cast on it by the Electricity Supp....
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....rofit and loss account to balance sheet. He was asked to explain whether any of the reserves have been claimed in the previous assessment years as expenses debited to profit and loss account and then transferred to balance sheet. On such verification it is found that the following reserves have been already been claimed by the assessee in the profit and loss account. The details are as under: Rs. 19,843 Claimed in P & L A/c. in asst. yr. 1970-71 Rs. 11,381 Claimed in P & L A/c. in asst. yr. 1971-72 Rs. 17,627 Claimed in P & L A/c in asst. yr. 1976-77 Rs. 48,851 . I am satisfied that the agreement is clear regarding the consideration and therefore the actual amount that should be considered would be Rs. 9,44,816 as added by Rs. 48,851 mentioned above. The ITO is directed to verify whether any other amount has already been claimed in P & L account as per the Income-tax records. Therefore on recalculating the profit under s. 41(2) would be Rs. 2,88,852 and not Rs. 2,40,001 as originally computed by the ITO in his order under s. 143(3) dt. 5th Jan., 1979". 8. On the basis of the aforesaid instructions of the IAC, the ITO once again framed the assessment....
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.... Thus, this also being a liability would not be deductible from the sale consideration. I have already held that the order of the ITO was erroneous and prejudicial to the interest of revenue as he had not taken the correct sale price of Rs. 13 lacs for the purposes of finding out the profit under s. 41(2) of the IT Act. The ITO is, therefore, directed to take the sale consideration at Rs. 13,00,000 as against Rs. 9,93,667 taken by him". Being aggrieved by the order of the CIT, the assessee has come up in appeal before the Tribunal. At the outset, the ld. counsel for the assessee submitted that since the ITO had framed the assessment on 9th July, 1982 as per the directions of the IAC issued under s. 144A of the Act, the CIT had no power to revise the said order of the ITO. The CIT could have taken action under s. 263 of the Act, if he had initiated the proceedings and passed the order under the said section after 1st Oct., 1984 in view of the amendment made in the said section by the Taxation Laws (Amendment) Act, 1984. Since in the instant case the CIT has passed his order on 6th July, 1984, the same was clearly bad in law. For this purpose, he relied on the orders of the Tribun....
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....rder should prevail. According to him, the IAC being a sub-ordinate authority could not have interfered with the earlier order of the CIT made under s. 263 of the Act, as in the said order, the CIT had directed the ITO to examine the balance in the Consumers Contribution Account only. As regards other three items viz., the Contingency Reserve, the Development Reserve and the Regular Payment Deposits, the CIT had clearly held that the same were not deductible in determining the sale price of the assets. Against the said order of the CIT the assessee had not preferred any appeal before the Tribunal. Relying on the decision in the case of Gaurishanker Kedia vs. CIT (1963) 49 ITR 655 (Bom) he submitted that the assessee should not be allowed to dispute the earlier order of the CIT on these three items. According to him, the decision in the case of Artex Manufacturing Co. has no application to the facts and circumstances obtaining in the instant case, as in the instant case, as per the agreement of sale (reproduced above), Rs. 13 lakhs were paid to the assessee specifically in respect of plant and machinery and L.T. and H.T. distribution lines etc. In the reported decision, as per the a....