2002 (8) TMI 801 - AT - Income Tax

Summary

Issues:
1. Disputed additions/disallowances made by the Assessing Officer under section 143(1)(a) of the Act.
2. Deduction under section 80HHC - Inclusion of turnover items.
3. Exclusion of sum from export turnover.
4. Disallowance of entertainment expenses.
5. Disallowance under section 40A(3) and imposition of additional tax.

Analysis:

1. Disputed Additions/Disallowances:
The appeal pertains to disputed additions/disallowances made by the Assessing Officer under section 143(1)(a) of the Act. The CIT(A) upheld the assessment order, leading to the appellant's appeal against certain additions and disallowances.

2. Deduction under Section 80HHC:
The Assessing Officer included turnover items like sales-tax, CST, and purchase tax, reducing the deduction under section 80HHC. However, it was argued that such inclusions were debatable and controversial issues that the Assessing Officer could not decide under section 143(1)(a). The Bombay High Court's decision in Tanna Exports v. N.G. Kamath supported this argument, emphasizing that recalculations under section 80HHC were impermissible at this stage.

3. Exclusion from Export Turnover:
An amount from the export turnover was excluded by the Assessing Officer, claiming it was not realized in foreign exchange. However, the CIT(A) extended the time for bringing foreign exchange to the country, indicating a lack of clarity and controversy regarding the application of section 80HHC(2)(a).

4. Disallowance of Entertainment Expenses:
A disallowance of a specific amount from entertainment expenses, allegedly spent on employees for staff welfare, was made. The Tribunal noted that the matter was previously allowed to the assessee and could not be disallowed without proper notice under section 143(2) of the Act, emphasizing that such decisions should not be made under section 143(1)(a).

5. Disallowance under Section 40A(3) and Additional Tax:
The Assessing Officer disallowed a significant amount under section 40A(3) for non-payment through account payee cheques or drafts. However, the Tribunal found this disallowance unjustified under section 143(1)(a), as the assessee could prove exceptional circumstances under rule 6DD(j) of the Income-tax Rules. The imposition of additional tax was also deemed unjustified and deleted, with directions to delete all additions/disallowances made under section 143(1)(a).

In conclusion, the Tribunal allowed the appeal, emphasizing that the disputed additions/disallowances were unjustified and directing the revenue to make a regular assessment in accordance with the law.