1983 (1) TMI 115 - AT - Income Tax

Summary

Issues:
1. Disallowance under section 40A(5) for bonus paid to an employee director.
2. Jurisdiction of the Income Tax Officer (ITO) to rectify assessments under section 154 of the IT Act.
3. Adequacy of opportunity for the assessee to raise objections.
4. Limitation period for rectification of assessments.
5. Applicability of sections 40A(5) and 40(c) in the disallowance calculation for an employee director.

Analysis:
1. The appeal pertains to the assessment year 1972-73 and concerns the disallowance of a bonus paid to an employee director under section 40A(5). The initial assessment did not consider the bonus amount, leading to a subsequent rectification by the ITO to disallow the bonus payment.

2. The assessee argued that the disallowance should have been calculated under section 40(c) instead of 40A(5). However, the Commissioner (A) upheld the ITO's rectification, stating that the mistake was apparent on the record and could be corrected under section 154.

3. The assessee raised concerns regarding the timeline for objections, as the notice for rectification was served shortly before the deadline. The ITO's decision not to grant additional time was based on the limitation period, but the appellate stage was deemed suitable for addressing the objections adequately.

4. The assessee also challenged the rectification's timing, claiming it exceeded the limitation period from the original assessment. However, it was clarified that the rectification related to the final assessment date, not the initial assessment, which had likely been reopened.

5. A crucial contention was the applicability of section 40A(5) versus section 40(c) in determining the disallowance for an employee director. The tribunal held that since the initial assessment had finalized the disallowance under section 40A(5), the ITO's rectification was valid as it corrected a mistake apparent on the record, rather than switching provisions.

6. Ultimately, the tribunal dismissed the appeal, affirming the ITO's rectification under section 154 based on the assessment's finalization under section 40A(5) for the disallowance calculation related to the bonus payment to the employee director.