2011 (2) TMI 1566 - AT - Income Tax

Summary

Issues involved:
Appeal against order under s. 143(3) of the IT Act, 1961 and levy of penalty under s. 271(1)(c) of the IT Act, 1961.

Issue 1: Assessment Order under s. 143(3) based on s. 154/143(1)(a)
- The assessee, engaged in cloth trading, declared excess cash as additional income during a survey.
- AO rectified intimation under s. 154 to add the income in the assessment.
- CIT(A) annulled assessment due to lack of notice u/s 143(2).
- Tribunal restored the matter to CIT(A) to decide on merits.
- Legal issue raised on validity of assessment order under s. 143(3) not considered by CIT(A).
- Assessee contended that proceedings under s. 154 after notice u/s 143(2) were not sustainable.
- Tribunal directed CIT(A) to decide the legal issue as per law.

Issue 2: Ad hoc disallowance of expenses
- CIT(A) deleted trading account addition but confirmed disallowance of expenses.
- Assessee appealed against the disallowance of telephone and vehicle expenses.
- Disallowance of Rs. 5,000 deemed excessive.
- AO directed to restrict disallowance to 1/10th of the expenditure.

Issue 3: Penalty under s. 271(1)(c)
- Penalty imposed by CIT(A) is consequential to the confirmed addition.
- Since quantum appeal is restored, penalty order also restored for reconsideration.
- CIT(A) directed to decide penalty after considering the legal issue raised by the assessee.

Conclusion:
- Appeals of the assessee allowed in part, with directions given for reconsideration of legal issues and expenses disallowance.