M.M. Kumar, J. - (1.) On the directions issued by this Court on 23.8.1988 while deciding I.T.C. No. 72 of 1981, the Tribunal has referred following two questions of law arise out of the order of the Tribunal dated 19.12.1980 in I.T.A. No. 144 of 1979 in respect of assessment year 1972 -73: 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that order passed by the Commissioner of Income Tax under Sec. 263 is bad in the law as the doctrine of merger was applicable?
(2.) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that order passed by the Commissioner of Income Tax under Sec. 263 is bad in law as the order of the Income Tax Officer on merits was neither erroneous nor prejudicial to the interests of the revenue? 2. Original assessment for the assessment year in question was framed on 30.8.1972 at a total income of Rs. 13,12,330/ -. The assessee had claimed deduction of Rs. 1,03,286/ -on account of interest on sticky loans credited to the suspense account. The basis of crediting interest to suspense account was that loanee had defaulted in the payment of interest on the loans and the assess was not likely to receive the same. Accordingly, the interest was neither credited to interest account nor included in the income of the assessee as it had been credited to the suspense account. The Assessing Officer rejected the contention of the assessee and refused to delete the sum of Rs. 1,03,286/ - from the total income.
(3.) On appeal to the Appellate Assistant Commissioner, the order of the Assessing Officer was set aside on 30.6.1976 and he issued directions to the Assessing Officer to frame de novo assessment in accordance with law. In the de novo assessment, the Assessing Officer allowed the deductions of Rs. 1,03,286/ -. However, he referred to the dividend income of Rs. 58,260/ and held the same to be taxable in the hands of the assessee. The de novo assessment was again challenged in appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) accepted the appeal by holding that there was a binding agreement between the assessee and the Punjab Government which obliges the assessee to pay part of the dividend income as a consideration for having received monies from the Punjab Government for utilization of the same. It was, therefore, held that expenditure of Rs. 38,898/ -was allowable under Sec. 57(iii) of the Income Tax Act, 1961 out of the total dividend income of Rs. 58,260/ -. Accordingly, the assessee was given the relief of Rs. 38,898/ -.;