1996 (7) TMI 177 - AT - Income Tax

Summary

Issues Involved:
1. Liability to pay interest under Section 215.
2. Validity of the assessment order for the assessment year 1989-90.
3. Disallowance of staff welfare expenses.
4. Disallowance of transport charges.
5. Disallowance under Section 43B.

Issue-wise Detailed Analysis:

1. Liability to Pay Interest Under Section 215:
The assessee contested the CIT(A)'s decision rejecting its claim of denying liability to pay interest under Section 215, asserting there was no mistake apparent from the record. The AO had ordered "charge interest if any," and the demand notice included interest under Section 215. The assessee appealed to the CIT(A), who deemed the interest consequential and non-appealable. The assessee filed a petition under Section 154, citing the Supreme Court decision in Central Provinces Manganese Ore Co. Ltd. vs. CIT, which allows an appeal against such interest levy. The Tribunal found the CIT(A)'s order erroneous, ignoring the Supreme Court's legal pronouncement and the assessee's denial of liability. The Tribunal set aside the CIT(A)'s order, directing a fresh decision on the merits, recognizing the appealability of the interest charge under Section 215.

2. Validity of the Assessment Order for the Assessment Year 1989-90:
The assessee argued that the CIT(A) failed to consider submissions in its petition dated 17th July 1991, regarding the assessment order's legality and jurisdiction. The assessee highlighted several reasons, including the notice under Section 143(2) being served within six months and the unsigned intimation under Section 143(1)(a). The Tribunal concluded that the CIT(A) erred in dismissing the first ground as general and non-adjudicable. The Tribunal set aside the CIT(A)'s order, restoring the issue for fresh adjudication after considering the written submissions and hearing both parties.

3. Disallowance of Staff Welfare Expenses:
The AO disallowed Rs. 50,000 out of Rs. 16,19,937 in staff welfare expenses, citing improper vouching. The CIT(A) reduced the disallowance to Rs. 25,000. The assessee contended that the AO never called for or examined the vouchers, supported by order-sheet entries. The Tribunal found the AO's observation unsupported by evidence and the disallowance arbitrary. The Tribunal deleted the Rs. 25,000 disallowance, finding it unsustainable in law.

4. Disallowance of Transport Charges:
The AO disallowed Rs. 50,000 of transport charges, noting a 45% increase despite reduced tea sale proceeds. The CIT(A) reduced the disallowance to Rs. 35,000. The assessee argued the AO's observations were erroneous, self-contradictory, and based on misconceptions, noting the difference in accounting periods. The Tribunal found the CIT(A) failed to consider relevant facts and explanations, deeming the disallowance unjustified. The Tribunal deleted the Rs. 35,000 disallowance.

5. Disallowance Under Section 43B:
The assessee raised a ground regarding disallowance of Rs. 3,157 under Section 43B, which the CIT(A) did not consider. The Tribunal directed the CIT(A) to decide this ground after granting an opportunity for the assessee to be heard.

Conclusion:
The appeal for the assessment year 1987-88 is allowed for statistical purposes, and the appeal for the assessment year 1989-90 is partly allowed. The Tribunal directed fresh adjudication on several issues, emphasizing the need to consider relevant facts, legal pronouncements, and the assessee's explanations.