CIT Vs. LEO FINANCIAL SERVICES LTD

JUDGEMENT

(1.) HAVING heard the counsel for the parties, we have frame the following substantial question of law:

(2.) DURING the course of hearing it is stated that after the Commissioner of Income Tax had passed the order dated 21.2.2005 under Section 263 of the Income Tax Act, 1961 ("Act", for short), which has been set aside by the impugned order passed by the Income Tax Appellate Tribunal ("Tribunal", for short) on 28.2.2007, only two additions were made by the Assessing Officer. We will only record that this assessment order dated 28.02.2006 was passed before the impugned order was passed by the Tribunal. Ld. counsel for the parties agree that we are required to, therefore, examine only these two additions and the reasons given by the Commissioner of Income Tax in the order dated 21.2.2005 in respect of these two additions.

(3.) THE assessment year in question is 2001-02. Provision of Section 94(7) of the Act dealing with dividend stripping were brought into statute book and are applicable from the assessment year 2002-03 onwards. There are two decisions of this Court in Commissioner of Income Tax Vs. Vikram Aditya and Associates P. Ltd. (2006) 287 ITR 268 and Commissioner of Income Tax Vs. Vimgi Investment P. Ltd. (2007) 290 ITR 505 directly on the issue. In these two cases, it has been held that order of the Assessing Officer cannot be treated as erroneous and therefore revisable under Section 263 of the Act, as Section 94(7) relating to dividend stripping became a part of the statute and is applicable from Assessment Year 2002-03 onwards and is not applicable to earlier assessment years. It would be appropriate to reproduce the observations of this Court in Vimgi Investment P. Ltd. (supra) wherein the order under Section 263 was set aside after noticing that the assessee therein had received dividend of about Rs.3.72 crores and the units were sold at a loss of Rs.4.45 crores. The assessee had claimed and had adjusted said loss against business profit. The Division Bench after referring to Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83, had observed as under: