1987 (1) TMI 172 - AT - Income Tax

Commissioner Appeals' Jurisdiction Upheld, Deletions Under Section 40A(3) Upheld Based on Circular Exceptions

The appeals were dismissed. The Commissioner (Appeals) was found to have jurisdiction, and the deletions of additions under section 40A(3) were upheld ... Jurisdiction Of Issues Involved1. Jurisdiction over the appeal.2. Deletion of additions under section 40A(3) of the Income-tax Act, 1961.Detailed Analysis1. Jurisdiction over the AppealThe primary issue was whether the Commissioner (Appeals) had the jurisdiction to decide the appeal or if it should have been handled by the AAC (Appellate Assistant Commissioner). The department argued that the appellate order should have been passed by the AAC based on Circular No. 269 dated 29-4-1980. This circular clarified that if the Tribunal's order remanding the case was passed after the appointed day (10-7-1978), the AAC should take action, not the Commissioner (Appeals).The assessee countered that the circular was for guidance and not legally binding. They argued that the Commissioner (Appeals) was a more senior officer, had already been dealing with the case, and no objection was raised by the ITO at the first appellate stage. The Tribunal's earlier order had set aside the AAC's decision and directed a fresh disposal, which the Commissioner (Appeals) undertook.The Accountant Member found no inherent lack of jurisdiction in the Commissioner (Appeals) and emphasized that substantial justice should not be delayed over technicalities. The Judicial Member, however, disagreed, stating that the Commissioner (Appeals) lacked jurisdiction based on the circular, and thus the orders should be quashed.The Third Member, called to resolve the difference, agreed with the Accountant Member. He reasoned that the words 'any action required to be taken' in section 39(2) did not include a fresh hearing of an appeal de novo. The Commissioner (Appeals) had jurisdiction as the appeal was effectively pending before him due to the income factor and the appointed date provisions.2. Deletion of Additions under Section 40A(3)The second issue was the deletion of additions made under section 40A(3) for payments exceeding Rs. 2,500 made in cash. The ITO had disallowed these payments, but the Commissioner (Appeals) deleted the additions, applying the Board's Circular No. 220 dated 31-5-1977, which provided exceptions for such disallowances.Assessment Year 1971-72:- Bansal Chemicals, Firozabad: The Commissioner (Appeals) found that the payments were marginally above Rs. 2,500 and were made in cash due to the supplier's insistence. He allowed the deduction, noting the stock position and the necessity of the purchases.- Nand Lal Paliwal & Bros., Firozabad: The Commissioner (Appeals) allowed the deduction as the assessee did not have a bank account in Firozabad, and the supplier demanded cash payment.- Ashok & Co., Firozabad: Similar to the above, the Commissioner (Appeals) allowed the deduction due to the lack of a bank account in Firozabad.- Jindal Chemicals Works, Firozabad: The Commissioner (Appeals) noted the regular business dealings and the necessity of the purchases, allowing the deduction under the Board's circular exceptions.Assessment Year 1972-73:- Bansal Chemicals, Firozabad: The Commissioner (Appeals) deleted the addition for similar reasons as in the previous year.- Gopi Chand Aggarwal: The Commissioner (Appeals) deleted the addition for diesel oil purchased in Agra, where the assessee had no bank account, and cash payments were customary.The Tribunal found no error in the Commissioner (Appeals)'s application of the Board's circular and upheld the deletions.ConclusionThe appeals were dismissed. The Commissioner (Appeals) was found to have jurisdiction, and the deletions of additions under section 40A(3) were upheld based on the Board's circular exceptions. The Tribunal emphasized the importance of substantial justice over procedural technicalities.