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2022 (5) TMI 613 - AT - Income TaxScrutiny assessment - Invalidity of the notice u/s. 143(2) as the same stands admittedly issued under CASS - if the formulation of guidelines, based on broad identifiable filters, for selection of cases for scrutiny by the assessing authority, is ultra vires the powers of the Board u/s. 119 of the Act - Whether the Board Instruction 04/2016, dated 13/7/2016, to the extent it advocates or furnishes guidelines under CASS 16 for selection of scrutiny of tax returns, is ultra vires the Constitution of India inasmuch as it usurps the power reserved under the Act for an assessing authority thereunder? - HELD THAT - Question cannot be answered by the Tribunal, a creation of the statute itself, but only by a Constitutional Court, i.e., the Hon'ble High Court or the Hon'ble Supreme Court of India, under its writ jurisdiction. The Hon'ble Court shall, in appropriate proceedings, examine if the said Board Instruction satisfies the test of intelligible classification and on that basis decide if it offends the principle of equality before law enshrined in Article 14, or not. This, to our mind, would be the only valid challenge as the Board has wide powers, both u/s. 119(1), to which reference was made by Sh. Mishra, as well as u/s. 119(2), to which it was not, conferred on it for furtherance of the objects and administration of the Act. Reference in this context may profitably be made to the decision in Pahwa Chemicals (P.) Ltd. 2005 (2) TMI 136 - SUPREME COURT wherein the Hon'ble Apex Court clarified that the Instructions by the Board u/s. 37B (of the Central Excise Act, 1944), which is akin to s. 119 of the Act, are circumscribed by the consideration stated in section 37B itself, i.e., in furtherance of the provisions of the Act. It is, as such, difficult to contend, as Shri Mishra does, that Board Instruction 04/2016 violates section 143(2) of the Act, which provision finds specific reference in section 119(2)(a). Instruction is in breach of or ultra vires section 119(1)(a) as it requires the AO to make an assessment in a particular case - The words in a particular manner qualify not only the words dispose of a particular case but also the words making a particular assessment , preceding the same. The ld. counsel is, I am afraid to say, reading a comma (,) after the word assessment , where none exists. Now, it is nobody s case, nor could possibly be, that selecting a particular case, based on certain broad parameters, viz. investment in real estate; cash deposited in bank (above certain monetary limits), etc., the Board is requiring the assessing authority to make an assessment in a particular manner. It is only, for the efficient management of the Act, facilitating the selection of a return for scrutiny. Nothing more and, nothing less. None of the decisions cited is on the point or in any manner contradicts or repudiates what stands stated here-in-above, which conforms to the well-established law, with, rather, and on the contrary, to the extent in relation to the Board Circular/Instruction, actually supportive of the same. Assessee challenges the assessment on the ground of territorial jurisdiction of the AO, claiming that the same lies with ITO, Ward-2, Jabalpur, and not with ITO, Ward-1, Jabalpur, i.e., the authority who has framed the impugned assessment - The objection is invalid as, firstly, the notice u/s. 143(2) is validly issued on the basis of the address mentioned in PAN (refer Pr. CIT v. I-Ven Interactive Ltd. 2019 (10) TMI 785 - SUPREME COURT ), change in which, where so, is required to be intimated by it u/s. 139A of the Act. In fact, the objection itself can be raised only within 30 days of the service of notice u/s. 143(2), i.e., by 01/9/2016 (section 124(3)). Thirdly, the resolution of the matter in case the assessee is not satisfied with the AO s disposal of his objection, timely raised, is through the administrative channel, and not through the appellate procedure, law on which is again well-settled (s.124(2); R.B. Seth Teomal v. CIT 1959 (3) TMI 3 - SUPREME COURT . Whether no opportunity was given to him, to quote the relevant Ground to make compliance of assessment as per the scheme of scrutiny of the case. ? - The argument is ex facie baseless. Para 5 read with para 4 of the letter dated 06/10/2017 (PB-1, pg. 52) clearly conveys (to the assessee) that non-exercise of the option to participate in the assessment proceedings electronically by 15/10/2017 would imply the continuation of proceedings manually. Further, para 3 of the Board Instruction 04/2016, to which reference was made by Shri Mishra, is applicable only to an assessee located in seven cities specified therein (and which does not include Jabalpur) and, two is for not being assessed electronically. The ground itself is misconceived. This decides the vaguely stated Gd. 5, giving it the meaning stated by Sh. Mishra which translates into a legal ground, liable for admission. Further, we observe this to be also the subject matter of the Additional Gd. 10, not pleaded for admission by Sh. Mishra, which though gets also decided alongwith. Assessee claimed a higher expenditure under the head Other Expenses (OE), i.e., vis-a-vis the preceding year - The scope of the limited scrutiny could be, as per the Board Instruction, extended by the AO only upon seeking approval for the same from the competent authority (PB-1, pgs. 39, 54), and which has not been - we cannot agree more with the assessee. The expenditure, for an aggregate of Rs. 38,43,334 afore-noted, also qualifies as direct trading expenditure, and ought to have, like-wise, i.e., as that on paper consumption, excluded from the purview of the limited scrutiny, as the assessee s return was selected only for the limited purpose of verifying OE claimed per its profit loss account, and scope of which has not been extended. The assessee being in the business of newspaper publishing, the said expenditure, a direct cost of its operations, stands rightly debited to the trading account, in contradistinction to the profit loss account, i.e., considering the assessee trade. As for the balance expenditure of Rs. 7.56 lacs (i.e., 46.00 - 38.44), the assessee s claim of the vouchers being not available as the same are small expenses, is specious and untenable. During hearing Shri Mishra could not answer as to why vouchers are not available for expenditure, such as DTP expenditure, newspaper, postage, photostat, etc. The disallowance at 20% is, under the circumstances, not unreasonable, nor any case stands made out for it being regarded as not so, much less substantiated inasmuch as no evidence stands adduced at any stage. The disallowance to that extent is confirmed, and the assessee gets part relief. Assessee s appeal is partly allowed.
Issues Involved:
1. Non-consideration of the assessee’s reply by the first appellate authority. 2. Jurisdictional challenge of the assessing authority. 3. Validity of the notice under section 143(2) issued via CASS. 4. Territorial jurisdiction of the Assessing Officer. 5. Opportunity for compliance with the assessment scheme. 6. Disallowance of expenses under "Other Expenses" (OE). Issue-wise Detailed Analysis: Non-consideration of the Assessee’s Reply: The assessee claimed that the first appellate authority did not consider its reply dated 17.02.2021. Despite submitting the reply late, the assessee argued that subsequent notices of hearing should have allowed for its consideration. However, the appellate authority did not reference this reply in the impugned order. The Tribunal noted that the assessee did not respond to three out of four notices and failed to draw attention to its submission during subsequent notices. The Tribunal concluded that remission to the first appellate authority is only warranted if new arguments or materials are presented, which was not the case here. Jurisdictional Challenge of the Assessing Authority: The first three grounds of appeal challenged the jurisdiction of the assessing authority. The assessee argued that the notice under section 143(2) was invalid as it was issued through CASS, which they claimed was contrary to the provisions of the Act. The Tribunal found that the first appellate authority had considered this ground and dismissed it, stating that the CASS scheme is formulated to encourage credibility and transparency. The Tribunal upheld this dismissal, noting that the assessee did not elaborate on its stand or provide supporting case law. Validity of the Notice under Section 143(2): The assessee argued that the notice under section 143(2) issued via CASS was invalid as the CBDT is not authorized to issue such instructions under section 119(1). The Tribunal examined whether the formulation of guidelines for case selection under CASS was ultra vires the powers of the Board under section 119. The Tribunal concluded that the Board has wide powers under section 119 for the administration of the Act and that the instruction did not require the AO to make an assessment in a particular manner. The Tribunal found no merit in the assessee's argument and dismissed this ground. Territorial Jurisdiction of the Assessing Officer: The assessee contended that the assessment should have been conducted by ITO, Ward-2, Jabalpur, instead of ITO, Ward-1, Jabalpur. The Tribunal noted that the notice under section 143(2) was issued based on the address in the PAN and tax returns, and any objection to jurisdiction should have been raised within 30 days of the notice. The Tribunal found the objection invalid and stated that the matter should be resolved through administrative channels, not appellate procedures. Opportunity for Compliance with the Assessment Scheme: The assessee claimed it was not given an opportunity to comply with the assessment scheme. The Tribunal found this argument baseless, noting that the assessee had opted for electronic assessment after the deadline and that the Board Instruction for electronic assessment applied only to specific cities, excluding Jabalpur. The Tribunal dismissed this ground as misconceived. Disallowance of Expenses under "Other Expenses" (OE): The assessee's case was selected for scrutiny due to higher OE claims. The AO disallowed 20% of the OE due to the assessee's failure to produce relevant vouchers and books of account. The Tribunal agreed with the AO's exclusion of certain direct trading expenses from OE but upheld the disallowance of the remaining expenses due to lack of evidence. The Tribunal confirmed the disallowance of Rs. 7.56 lakhs and provided partial relief to the assessee. Conclusion: The Tribunal partly allowed the assessee's appeal, confirming the disallowance of certain expenses while providing relief for others. The Tribunal dismissed the other grounds raised by the assessee, finding no merit in the arguments presented. The order was pronounced on May 06, 2022.
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