1985 (11) TMI 88 - AT - Income Tax

Issues Involved:
1. Legality of the assessment order dated 20-1-1984.
2. Validity of the fresh assessment procedure.
3. Determination of property income.
4. Disallowance of car expenses.
5. Disallowance under section 40A(3) of the Income-tax Act.
6. Bogus purchase of cashew kernels.
7. Under-valuation of closing stock of tins.
8. Cash credit from Shri Arumugam Swamy.
9. Disallowance of provisions for Central Sales Tax (CST).
10. Income from lorries.
11. Weighted deduction claims.

Detailed Analysis:

1. Legality of the Assessment Order Dated 20-1-1984:
The assessee contended that the assessment order passed on 20-1-1984 was illegal as the ITO should have issued a fresh draft assessment order after the original assessment was set aside. The Tribunal found that the draft assessment order dated 17-3-1981 was not set aside and that the ITO correctly followed the procedure under section 144B. The Tribunal held that the assessment order dated 20-1-1984 was not null and void or vitiated by any illegality.

2. Validity of the Fresh Assessment Procedure:
The assessee argued that the IAC's directions dated 11-1-1984 were issued beyond the 180-day limitation period prescribed under Explanation 1(iv) to section 153. The Tribunal held that this period is for exclusion purposes only and does not render the directions invalid if issued beyond 180 days. The Tribunal also found that the subsequent ITO who passed the assessment order dated 20-1-1984 properly applied his mind and followed the procedural requirements.

3. Determination of Property Income:
The ITO had estimated the annual value of the Chinnakkada property at Rs. 6,000 and computed the income at Rs. 4,583. The Tribunal directed the ITO to find out the municipal tax paid and determine the annual value of the property accordingly. If the total annual value falls below Rs. 6,000, the ITO should levy tax on the resultant figure after deductions.

4. Disallowance of Car Expenses:
The Tribunal accepted the assessee's submission to restrict the disallowance to one-fourth of the total car expenses, providing a relief of Rs. 3,192.50.

5. Disallowance Under Section 40A(3):
The ITO disallowed Rs. 50,000 paid to Shri Rajan through a bearer cheque. The Tribunal held that cashewnuts are agricultural produce and the payment is covered by rule 6DD. The Tribunal found sufficient evidence to establish the genuineness of the payment and allowed the relief of Rs. 50,000.

6. Bogus Purchase of Cashew Kernels:
The ITO added Rs. 7,48,377 towards bogus purchases of cashew kernels. The Commissioner (Appeals) reduced this amount to Rs. 4.5 lakhs. The Tribunal upheld this reduction, noting that the practice of local purchases supported by bought notes was accepted in other cases and that the suppressed out-turn of earlier years should not justify an addition in the current year.

7. Under-valuation of Closing Stock of Tins:
The ITO made an addition of Rs. 24,000 under this head. The Tribunal directed the ITO to verify the value of the closing stock, considering that some tins were damaged and should be valued at Re. 1 per tin.

8. Cash Credit from Shri Arumugam Swamy:
The ITO added Rs. 30,000 as bogus cash credit. The Tribunal upheld this addition, noting that no confirmation letter was provided, and Shri Arumugam Swamy was not produced for examination.

9. Disallowance of Provisions for CST:
The provision of Rs. 88,517 for CST on African raw nuts was disallowed as the tax was done away with by an amendment effective from 7-9-1976. The Tribunal directed the ITO to verify and adjust the closing stock value if the provision was included. The provision of Rs. 51,686 for CST on local purchases of kernels was also disallowed, as the amendment exempted such purchases from CST.

10. Income from Lorries:
The ITO estimated the income from two lorries at Rs. 5,000. The Tribunal confirmed this addition, noting that the assessee maintained a lorry booking office, indicating that the lorries were not used exclusively for business purposes.

11. Weighted Deduction Claims:
The ITO disallowed weighted deductions on certain expenses incurred within India. The Tribunal allowed weighted deductions on salary, stationery, and subscriptions, following the Special Bench decision in J.H. & Co. v. Second ITO. The Tribunal upheld the disallowance of weighted deduction on the commission payment to Gibbs Nathaniel of Canada but allowed the deduction on the commission payment to Nutmeat Trading Co.

Conclusion:
The appeal of the assessee was partly allowed, providing relief on certain grounds, while the appeal of the department was dismissed.

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