1990 (5) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Disallowance of expenditure incurred in respect of writ petitions challenging notices under sections 148 and 142(1) of the Income-tax Act, 1961.
2. Applicability of section 80VV of the Income-tax Act, 1961, to the expenditure incurred by the assessee.

Issue-Wise Detailed Analysis:

1. Disallowance of Expenditure Incurred in Respect of Writ Petitions Challenging Notices under Sections 148 and 142(1) of the Income-tax Act, 1961:

The primary issue revolves around whether the Tribunal was justified in upholding the disallowance of Rs. 2,79,717 incurred by the assessee in connection with writ petitions challenging the issuance of notices under sections 148 and 142(1) of the Income-tax Act, 1961. The assessee paid a total sum of Rs. 3,21,207 for legal fees in various writ proceedings, out of which Rs. 2,79,717 was specifically for challenging the jurisdiction of the Income-tax Officer to issue notices under sections 148 and 142(1).

The Tribunal had upheld the disallowance by reasoning that the issuance of notices under these sections was the basis for starting income-tax proceedings for the determination of tax, penalty, or interest. Hence, the expenditure related to these proceedings fell within the mischief of section 80VV, which restricts the allowance of such expenditures to Rs. 5,000.

2. Applicability of Section 80VV of the Income-tax Act, 1961, to the Expenditure Incurred by the Assessee:

Section 80VV, as it stood at the material time, allowed a deduction for any expenditure incurred in respect of proceedings before any income-tax authority or court relating to the determination of any liability under the Act, by way of tax, penalty, or interest, but capped the deduction at Rs. 5,000. The Tribunal had held that since the notices under sections 148 and 142(1) were steps in the process of determining tax liability, the expenditure incurred in challenging these notices was subject to the limitations of section 80VV.

However, the High Court differentiated between the nature of the proceedings under sections 148 and 142(1). It held that the writ petitions challenging the validity of notices under section 148 were fundamentally about the jurisdiction of the Income-tax Officer to reopen completed assessments. The court noted that the writ petitions did not relate to the determination of tax liability but to the unlawful assumption of jurisdiction by the Income-tax Officer. Therefore, such expenditures did not fall within the scope of section 80VV and should be allowed.

Conversely, the court agreed with the Tribunal regarding the notices under section 142(1). It held that these notices were part of the assessment proceedings and directly related to the determination of the assessee's tax liability. Hence, the expenditure incurred in challenging these notices fell within the mischief of section 80VV and was rightly disallowed.

Conclusion:

The High Court concluded that the Tribunal was not justified in disallowing the expenditure incurred by the assessee in respect of writ petitions challenging the validity of notices under section 148 of the Income-tax Act, 1961. However, the Tribunal was justified in upholding the disallowance of expenditure incurred in respect of writ petitions challenging the validity of notices under section 142(1) of the Income-tax Act, 1961. There was no order as to costs.