R.K.grawal, J. - (1.) The Tribunal, Delhi, has referred the following three questions of law under s, 256(1) of the IT Act, 1961, hereinafter referred to as the Act, for opinion to this Court : "1. Whether, on facts and in law, the Tribunal was justified in confirming the action of the CIT(A) who upheld the action of the ITO in taking action under Section 148 of the IT Act, 1961.
(2.) Whether, on facts and in the circumstances of the case, the Tribunal was justified in upholding the action of the CIT(A), who confirmed the addition of Rs. 10,417 made by the ITO under Section 143(3)/148 on account of interest payable to U.P. Government on seed loan taken by the company.
(3.) Whether, on facts and in law and in the circumstances of the case, the Tribunal was legally right in holding that the interest payable to U.P. Government on seed loan taken was not deductible from the interest earned from the investments of the same loan by the appellant." 2. Briefly stated, the facts giving rise to the present reference are as follows : The applicant is a company incorporated under the provisions of the Companies Act, 1956. It is a Government of U.P. undertaking. For the asst. yr. 1977-78 for which the previous year is the financial year, the ITO completed the assessment vide order dt. 31st Dec., 1977, determining the total income at Rs. 1,40,552. In the said assessment the ITO while computing interest under the head Income from other sources' allowed the deduction of Rs. 10,417 being the amount of interest paid by the applicant to the U.P. Government in respect of 'Seed Loan for Industrial Estate'. Subsequently, he came across a decision of the Calcutta High Court in the case of CIT v. New Central Jute Mills Co. Ltd. (1979) 118 ITR 1005 (Cal) and on the basis of the information as to the legal proposition laid down in the said ruling, he came to believe that as a result of allowance of deduction of interest expenditure of Rs. 10,417 in the original assessment income to that extent had escaped assessment. He issued notice under Section 148 of the Act. In response to the said notice, the applicant filed the return of income. In the reassessment proceeding, the ITO withdrew the deduction of Rs. 10,417 resulting in the taxable income assessed at Rs. 1,50,970. The reassessment order has been upheld by the CIT(A) as also by the Tribunal, Delhi. 3. We have heard Sri Vikram Gulati, learned counsel for the applicant, and Sri A.N. Mahajan, learned counsel appearing for the Revenue.;