TaxTMI 
TaxTMI 
2006 (3) TMI 86
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....court admitted the appeals on June 17, 2003 and formulated the following substantial questions of law: "(1) Whether the Tribunal is right in law in holding that the assessment pursuant to the notice under section 158BD issued in the instant case based on the action under section 132A in the case of T.T.V. Dinakaran is valid in law notwithstanding that no part of the assessment made was based on any records seized in the course of the action under section 132A? (2) Whether the Tribunal is right in law in confirming the disallowance of supervisory charges, which were duly recorded in the accounts regularly maintained by the appellant and which were not seized or requisitioned either under section 132 or section 132A? (3) Whether the ....
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....sessment years 1994-95 and 1995-96, supervisory charges payable to M/s. T.C. V. Packers were claimed at Rs. 24.68 lakhs and Rs. 33.67 lakhs respectively, while the amount that was actually found paid in the financial year relevant to the assessment year 1994-95 was only Rs. 6 lakhs. The claim of the assessee was that the assessee was due to pay 10 per cent, of gross income on contracts executed to the said party. The Assessing Officer noted that for the assessment year 1996-97, there was no such claim. The Assessing Officer further noted that M/s. T.C.V. Packers was a proprietary concern of Mr. T.T.V. Dinakaran up to March 31, 1994. It was stated to be owned by Mrs. D. Anuradha, the wife of Mr. T.T.V. Dinakaran, thereafter. Mr. T.T.V. Dinak....
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....e under the supervision of M/s. T.C.V. Packers, the necessity of payment of supervisory charges to Mr. T.T.V. Dinakaran, i.e., to his concern of M/s. T.C.V. Packers was only a cover up because the same work could have been carried out in the capacity as director of the company. Therefore, the Assessing Officer was of the opinion that the supervisory charges were not allowable and hence he disallowed the same under section 40A(2) of the Income-tax Act and treated as undisclosed income and completed the block assessment on March 27, 1998, under section 143(3) read with section 158BD of the Income-tax Act. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal to the Income-tax Appellate Tribunal. The Income-tax Appellat....
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....roviso omitted by DTL (Amend.) Act, 1987, with effect from April 1, 1989. (b) The persons referred to in clause (a) are the following, namely:- (i) where the assessee is any relative of the assessee; an individual (ii) where the assessee is any director of the company/ a company, firm, partner of the firm, association of persons or member of the association or Hindu undivided or family, or any relative family of such director, partner or member; (iii) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the ass....
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....made to the taxpayers, relatives or associate concerns, is liable to be disallowed in computing the profits of the business, profession to the extent that the expenditure is considered to be excessive or unreasonable. The reasonableness in any expenditure is to be judged having regard to the fair market value of the goods, services or facilities for which payment is made or the legitimate needs of the business or profession or the benefits derived by the assessee from the said expenditure. Only the expenditure which is excessive and unreasonable according to the opinion of the Income-tax Officer, is to be disallowed in computing the income of the business. As in this case, the Assessing Officer only invoked the provision of section 40A(2) a....
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.... under section 40A(2) as undisclosed income. As in this case, the Assessing Officer had not given a finding that this expenditure claimed by the assessee was false. The Assessing Officer only disallowed the expenditure under section 40A(2) on the ground that this expenditure is unreasonable. The disallowance made under section 40A(2) of the Act, would not be considered for the purpose of making block assessment under Chapter XIV-B of the Act, unless and until the Revenue gives a categorical finding that the whole expenditure of deduction is totally false. In the present case, the actual finding given by the Tribunal in respect of supervisory charges, is as under: "However, by claiming certain expenditure as has been done in the instant c....