2009 (8) TMI 1151 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenditure and salary/interest paid to partners.
2. Legality of assessment u/s 144 instead of u/s 143(3).
3. Addition u/s 69A.
4. Enhancement of income by CIT(A).

Summary:

1. Disallowance of Expenditure and Salary/Interest to Partners:
The assessee contested the disallowance of Rs. 5,64,626 out of expenditure and the disallowance of salary and interest paid to partners. The Tribunal upheld the disallowance of salary and interest to partners under s. 184(5) of the IT Act, noting that the assessee failed to rebut the non-compliances listed in the assessment order. However, it clarified that the partners could seek deletion of the disallowed amounts from their taxable incomes under s. 184(5) r/w s. 28(v).

2. Legality of Assessment u/s 144:
The assessee argued that the assessment should have been completed under s. 143(3) instead of s. 144. The Tribunal found no merit in this ground, noting that the assessment under s. 144 was justified due to the assessee's non-compliance with notices. The Tribunal emphasized that s. 144 does not grant unbridled powers to the AO, who must act objectively.

3. Addition u/s 69A:
The assessee challenged the addition of Rs. 8,22,724 under s. 69A, arguing that no separate addition could be made following the rejection of accounts under s. 145(3). The Tribunal rejected this argument, stating that the deeming provisions of s. 68 or s. 69A could still apply. The Tribunal confirmed the addition, noting that the assessee failed to provide any cogent explanation or evidence.

4. Enhancement of Income by CIT(A):
The CIT(A) enhanced the income by Rs. 28,26,484 under s. 40A(3) due to unproved purchases from three suppliers. The Tribunal examined the facts and found that the purchases were either not made or made in cash, leading to the presumption of cash payments. However, the Tribunal noted that the Revenue failed to prove that the payments exceeded Rs. 20,000 each, a necessary condition for invoking s. 40A(3). Consequently, the Tribunal held that the provision could not be invoked and the enhancement was not justified.

Conclusion:
The Tribunal partly allowed the assessee's appeal, confirming some disallowances and additions while rejecting others due to lack of sufficient evidence or failure to meet statutory conditions.