2017 (5) TMI 408 - AT - Income Tax

Disallowance of exemption u/s 80P(2)(a)(iv) - Held that - It is pertinent to note that there is a loss in respect of this particular assessment year. The stock register entry has also given the details wherein the figures are in the minus. There was no comment by the assessing officer as well as by the CIT (A) as to these figures are contrary to the stand of the assessee. In-fact the Assessing Officer though mentioned the statement of one of the employee it has not given any comment or any observation related to that statement that the sale was on the part of employees and not that of assessee. The statement was not dealt by the Assessing Officer while passing the assessment order. Therefore, in the interest of justice, it is necessary to remand back the matter before the Assessing Officer to verify the correctness of the statement as well as to verify the stock register as per the contentions of the Ld. AR before the authorities.

Issues Involved:
1. Disallowance of exemption under Section 80P(2)(a)(iv) and Section 80P(2)(e) of the Income Tax Act.
2. Disallowance of declared losses in Consumer Store Division and Printing Press Division.
3. Levy of interest under Sections 234B, 234C, and 234D.
4. Imposition of penalty under Section 271(1)(c).
5. Rejection of application under Section 154.

Issue-wise Detailed Analysis:

1. Disallowance of Exemption under Section 80P(2)(a)(iv) and Section 80P(2)(e):
The assessee claimed exemptions under Section 80P(2)(a)(iv) and Section 80P(2)(e) of the Income Tax Act, which were disallowed by the Assessing Officer (A.O) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The A.O noted that the income from transportation and storage credited in the head office account was not exempt under Section 80P. Additionally, the sale of fertilizers was not among members but to IFFCO and KRIBHCO, disqualifying it from the exemption. The ITAT remanded the matter back to the A.O for verification of the correctness of the statements and stock register entries, indicating that the A.O had not fully considered the evidence presented by the assessee.

2. Disallowance of Declared Losses in Consumer Store Division and Printing Press Division:
The A.O disallowed losses declared in the Consumer Store Division and Printing Press Division, citing errors in the method of accounting. The CIT(A) upheld this disallowance. The assessee argued that the losses were substantiated by the regular method of accounting, with all items on the debit and credit side fully verifiable. The ITAT noted discrepancies in the stock register entries and remanded the matter back to the A.O for a thorough verification of the stock register and the correctness of the statements made by the employees.

3. Levy of Interest under Sections 234B, 234C, and 234D:
The assessee contested the levy of interest under Sections 234B, 234C, and 234D, arguing that there was no legal warrant for such charges. The ITAT did not provide a detailed analysis on this issue but indicated that the matter would be reconsidered upon remand of the primary issues.

4. Imposition of Penalty under Section 271(1)(c):
The assessee argued that the rejection of certain deductions did not amount to concealment of income or filing of inaccurate particulars, and thus did not warrant a penalty under Section 271(1)(c). The ITAT noted that the penalty issue was consequential to the quantum appeal (ITA No. 3309/DEL/2011) and thus became infructuous upon remand for reconsideration of the primary issues.

5. Rejection of Application under Section 154:
The assessee's application under Section 154 for rectification was rejected by the A.O without considering the facts of the case. The ITAT noted that the original rectification order was not challenged before the Tribunal, and thus the appeal against the second rectification order could not be sustained. The ITAT dismissed the appeal, indicating procedural lapses on the part of the assessee.

Conclusion:
The ITAT remanded the primary issues concerning exemptions and declared losses back to the A.O for a thorough verification, indicating procedural and evidentiary shortcomings in the initial assessment. The penalty issue was deemed infructuous pending reconsideration of the primary issues, and the appeal against the rejection of the Section 154 application was dismissed due to procedural lapses. The ITAT's order emphasizes the need for detailed verification and proper procedural adherence in tax assessments.

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