(1) Reliance was placed on the decision of the Allahabad
Tribunal in the case of Kothari Products Ltd., (1991) 37 ITD 285 wherein it
was held that zarda yukt pan masala does not fall under the expression
‘tobacco preparation’. Further, the Allahabad High Court and also the Suprme
Court have declined to interfere with the aforesaid order, thus ruling that
the question under consideration is a question of fact and not a question of
law.
(2) Further, ‘tobacco preparation’ would cover all those
preparations and products which are prepared using tobacco, if the properties
of tobacco are retained in the preparation without undergoing any
metamorphosis as a result of addition of other ingredients. Hence, even 6–7%
content of tobacco in gutka is sufficient to call it ‘tobacco preparation’.
(3) The expression ‘tobacco preparation’ has to be
understood in contradistinction to a ‘tobacco-less preparation’. As a
‘tobacco-less preparation’ cannot become a ‘tobacco preparation’, by the same
logic ‘tobacco preparation’ cannot become ‘tobacco-less preparation’. Hence,
it cannot be said that ‘gutka’ is a ‘tobacco-less preparation’.
(4) Further, the words ‘such as’ used in item 2 of Sch. XI
do not limit the ambit to the specific 7 items in item no. 2. The words ‘such
as’ are illustrative and not exhaustive.
(5) In addition, without prejudice to the above, even if it
is assumed that the words ‘such as’ in item no. 2 of Sch. XI are in the nature
of limitation, gutka and pan masala would fall under ‘chewing tobacco’, an
item mentioned in item no. 2 of Sch. XI.
(6) Further, classification by various provisions of the
Acts dealing with Central Excise and Sales Tax, as relied upon by the
assessee’s authorised representative, is hardly relevant for deciding the
scope of ‘tobacco preparations’ and ‘chewing tobacco’ under the I.T. Act.
(7) Hence, the CIT was correct in invoking the provisions
of S. 263 as the presumptions made by the AO regarding the nature of the
business of the assessee and the profits arising from them were completely
incorrect and the AO had granted deduction without taking note of the most
crucial part of the case i.e., the assessee was manufacturing gutka and
it was held that the assessee was not entitled to deduction u/s.80-IB.
