2004 (8) TMI 343 - AT - Income Tax

Tribunal Quashes Assessment Proceedings, Upholds Deletions of Disallowances for Various Business Expenses.

AGRAWAL FARM EQUIPMENTS. Versus INCOME TAX OFFICER.

AGRAWAL FARM EQUIPMENTS. Versus INCOME TAX OFFICER. - TTJ 085, 723, Issues Involved:1. Validity of assessment proceedings initiated u/s 143(3)/147.2. Disallowances of various expenses by the AO.3. Additions made by the AO to the declared gross profit.4. Disallowances of travelling expenses by the AO.5. Disallowance of discount expenses claimed by the assessee.Summary:Issue 1: Validity of Assessment ProceedingsThe assessee argued that the assessment proceedings should be quashed as the cases were selected for scrutiny in violation of Board's Instruction Nos. 1967 and 1984. The Tribunal held that the AO was not justified in taking up the case for scrutiny in violation of the Board's instructions. The Tribunal quashed the assessment framed by the AO for all three years, citing the doctrine of legitimate expectation and binding nature of Board instructions.Issue 2: Disallowances of Various Expenses- Staff Welfare Expenses: The Tribunal found the expenses reasonable considering the turnover and number of employees. Disallowances of Rs. 3,823, Rs. 4,013, and Rs. 4,258 for the respective years were deleted.- Shop Expenses: The Tribunal deleted the disallowance of Rs. 688 for the assessment year 1995-96, considering the meager claim.- Postage and Telephone Expenses: The Tribunal reduced the disallowances to Rs. 1,500 each for the assessment years 1995-96 and 1996-97, and Rs. 2,000 for the assessment year 1997-98.- Interest Account: The Tribunal deleted the disallowance of Rs. 6,813, holding that the interest paid was not excessive or unreasonable.- Service Charges Account: The Tribunal deleted the disallowances of Rs. 16,050 and Rs. 43,562 for the assessment years 1996-97 and 1997-98, respectively, considering the nature of expenses and details filed.Issue 3: Additions to Declared Gross ProfitThe Revenue's appeal against the deletion of additions to the declared gross profit was dismissed. The Tribunal found no infirmity in the CIT(A)'s order, which had elaborately discussed the issue and held that the AO's application of a 12.5% gross profit rate was not justified.Issue 4: Disallowances of Travelling ExpensesThe Tribunal upheld the CIT(A)'s deletion of disallowances of Rs. 96,000, Rs. 1,41,600, and Rs. 1,08,000 for the respective years. The Tribunal noted that the employees' statements were verified, and the assessee was not allowed to cross-examine the witnesses initially. The Tribunal found the CIT(A)'s reasoning justified.Issue 5: Disallowance of Discount ExpensesThe Tribunal upheld the CIT(A)'s deletion of the disallowance of Rs. 27,420 out of the discount account. The Tribunal found no infirmity in the CIT(A)'s order, which was in accordance with the provisions of s. 36(1)(vii).Conclusion:The appeals of the assessee were allowed, and the appeals of the Revenue were dismissed. The Tribunal quashed the assessment proceedings and deleted various disallowances and additions made by the AO.