2012 (12) TMI 67 - AT - Income Tax

Validity of Notice issued u/s 143(2) - selection of cases of corporate assesses for scrutiny - held that - No disallowance of Rs. 5 lacs or more and in any case no finding is available from the order of the authorities below that an identical issue had arisen in the year under consideration. Moreover, it is also seen that each of the disallowances made in A.Y. 2004-05 were lump sum disallowances, which cannot be said to be arising in the succeeding year. since notice issued was not in terms of the instructions issued by the CBDT, proceedings are invalid. - judgment of Hon ble Andhra Pradesh High Court in the case of CIT Vs. Smt. Nayana P. Dedhia 2004 (8) TMI 99 - ANDHRA PRADESH HIGH COURT relied upon. Further, Once the CBDT has issued instructions for assumption of jurisdiction for selection of cases of corporate assesses for scrutiny and assessment thereof, the same have to be followed in letter and spirit by the AO. The burden lies on the authority assuming jurisdiction to show and establish that such instructions have duly been complied and satisfied in letter and spirit. However, in the instant case, for the reasons stated above, instructions issued by the CBDT are not shown to have been satisfied for assumption of jurisdiction. Thus, we are in agreement with the contention raised by the appellant that notice issued u/s 143(2) of the Act for assumption of jurisdiction was not in terms of the instructions of the CBDT - Hence, both the notice and the assessment framed are held to be without valid jurisdiction and stand quashed as such - notice as well the as assessment is quashed, we do not consider it necessary to render any decision on merits of the other grounds raised in both these appeals, as the necessary consequence thereof shall follow in the light of judgment rendered by the Hon ble Calcutta High Court in the case of Rawatmal Harakchand Vs. CIT 1978 (3) TMI 10 - CALCUTTA HIGH COURT - In the result, assessee s appeal stands allowed and that of the department is dismissed.

Issues Involved:
1. Assumption of jurisdiction under Section 143(2) of the Income Tax Act.
2. Disallowance of interest on lease amount.
3. Disallowance of business expenditure incurred on marriage occasions of dealers.
4. Disallowance of foreign travel expenses.
5. Disallowance of expenditure on fees and subscriptions.
6. Adhoc addition out of selling and distribution expenses.
7. Deletion of addition on account of unsecured loans.
8. Deletion of addition on account of interest charged on investment in shares.
9. Deletion of addition on account of interest charged on advances to suppliers and security deposits.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 143(2):
The assessee challenged the jurisdiction of the Assistant Commissioner of Income Tax to initiate proceedings under Section 143(2) on the grounds that the initiation was not in accordance with the Central Board of Direct Taxes (CBDT) instructions for the selection of corporate assessee cases for the financial year 2007-08. The CBDT guidelines specified that cases with an addition or disallowance of Rs. 5 lakhs or more pending in appeal before the CIT(A) should be scrutinized. The assessee argued that no such addition or disallowance was pending in the previous year. The tribunal found that the aggregate disallowance of Rs. 5,60,207 in the assessment year 2004-05 did not meet the criterion of a single addition or disallowance of Rs. 5 lakhs or more. Therefore, the notice issued under Section 143(2) was not in accordance with CBDT instructions, rendering the assumption of jurisdiction invalid. Consequently, the notice and the assessment framed were quashed.

2. Disallowance of Interest on Lease Amount:
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance of interest incurred on a lease amount of Rs. 4 lakhs. The tribunal did not provide further analysis on this issue due to the quashing of the assessment on jurisdictional grounds.

3. Disallowance of Business Expenditure on Marriage Occasions:
The CIT(A) disallowed Rs. 42,530/- representing expenditure incurred by the field staff on marriage occasions of dealers, which the assessee claimed as eligible business expenditure. The tribunal did not delve into this issue further due to the quashing of the assessment.

4. Disallowance of Foreign Travel Expenses:
The CIT(A) sustained the disallowance of Rs. 5,11,538/- out of foreign travel expenses, against the disallowance of Rs. 5 lakhs made by the Assessing Officer. The tribunal did not address this issue further due to the quashing of the assessment.

5. Disallowance of Expenditure on Fees and Subscriptions:
The CIT(A) upheld the disallowance of Rs. 1,64,890/- on fees and subscriptions. The tribunal did not provide further analysis on this issue due to the quashing of the assessment.

6. Adhoc Addition out of Selling and Distribution Expenses:
The CIT(A) upheld an adhoc addition of Rs. 25 lakhs out of selling and distribution expenses and manufacturing expenses claimed by the assessee. The tribunal did not address this issue further due to the quashing of the assessment.

7. Deletion of Addition on Account of Unsecured Loans:
The Revenue appealed against the deletion of Rs. 93,18,740/- on account of unsecured loans from two companies, arguing that the assessee failed to prove the genuineness and creditworthiness of these transactions. The tribunal did not address this issue further due to the quashing of the assessment.

8. Deletion of Addition on Account of Interest Charged on Investment in Shares:
The Revenue also contested the deletion of Rs. 60,000/- on account of interest charged on investment in shares under Section 14A of the Income-tax Act. The tribunal did not delve into this issue further due to the quashing of the assessment.

9. Deletion of Addition on Account of Interest Charged on Advances to Suppliers:
The Revenue challenged the deletion of Rs. 18,58,373/- on account of interest charged on advances to suppliers and security deposits under Section 14A. The tribunal did not address this issue further due to the quashing of the assessment.

Conclusion:
The tribunal quashed the notice issued under Section 143(2) and the subsequent assessment due to the improper assumption of jurisdiction, as the notice did not comply with the CBDT instructions. Consequently, the tribunal did not render decisions on the merits of the other grounds raised in both the assessee's and the Revenue's appeals. The assessee's appeal was allowed, and the Revenue's appeal was dismissed.

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