1978 (6) TMI 65 - AT - Income Tax

Summary

Issues:
- Appeal against the order of the AAC regarding the remedy of s. 154 for assessments made under s. 143(1).
- Disallowance of specific expenditure items by the ITO under s. 143(1).
- Contention of the assessee regarding the nature of expenses and justification for add back.
- Competence of the ITO to add back only prima facie disallowable amounts under s. 143(1).
- Availability of the remedy under s. 154 for rectification of mistakes apparent from the record.

Analysis:

The appeals consolidated for convenience were filed by the Revenue against the AAC's order allowing the remedy of s. 154 for assessments under s. 143(1) and directing rectification for specific expenditure items disallowed by the ITO. The ITO added back expenses claimed by the assessee without providing reasons, leading to a lack of communication regarding the assessment nature. The assessee's rectification applications were not processed correctly, resulting in the ITO's refusal to rectify the disallowed items.

The AAC accepted the assessee's contentions that the disallowed expenses were not entertainment-related but incurred on workers. It was held that the ITO could only add back prima facie disallowable amounts under s. 143(1) and that the disallowance of claimed deductions was a clear contravention of the law, constituting a rectifiable mistake under s. 154. The AAC directed the ITO to rectify the assessments, leading to the Revenue's appeal.

Upon review, the tribunal found no reason to interfere with the AAC's order, emphasizing that the ITO's disallowance of expenses was not justified under s. 143(1) as the claimed deductions were not inherently inadmissible without further inquiry. The tribunal confirmed that the disallowance constituted a mistake apparent from the record, eligible for rectification under s. 154. Consequently, the departmental appeals were dismissed, upholding the AAC's decision to allow the rectification and directing the ITO to rectify the assessments accordingly.