1989 (1) TMI 165 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of transport and manufacturing expenses.
2. Claim for relief under Section 80HH.
3. Disallowance of interest paid to a partner's wife.
4. Validity of the assessment order and limitation period.

Issue-Wise Detailed Analysis:

1. Disallowance of Transport and Manufacturing Expenses:
The Revenue challenged the deletion of Rs. 1,87,923 and Rs. 41,982, arguing that the expenditure for the transport of 316.480 M.Ts. of raw sulphur and 428.840 M.Ts. of refined sulphur was not established. The ITO's suspicion arose due to the unavailability of transporters and the suspicious nature of the transport vouchers. The assessee provided affidavits confirming the transport, but the IAC discarded them as self-serving without cross-examination. The CIT(A) deleted the additions, noting that there was no evidence of raw sulphur sales at Bombay and that the goods were recorded in the stock register checked by the Industries Department officials. The Tribunal upheld the CIT(A)'s order, emphasizing that the ITO did not make necessary inquiries from sales tax check-posts or municipal toll barriers and that the lack of folds on transport papers was insufficient to prove non-transportation.

2. Claim for Relief under Section 80HH:
The ITO denied the benefit under Section 80HH, arguing that the auditor's report was incorrect due to disallowed expenditures. The CIT(A) held that the law only required the submission of an auditor's report in the prescribed form, and the relief could not be denied due to mistakes in the report. The Tribunal agreed with the CIT(A), noting that the disallowance had been deleted, making the ITO's contention baseless.

3. Disallowance of Interest Paid to a Partner's Wife:
The ITO disallowed Rs. 12,817 paid to Smt. Kamlesh Gupta, the wife of a partner, on the ground that no interest was paid in earlier years and the transfer of Rs. 30,000 to the partner's account made the claim non-genuine. The CIT(A) found that the interest was actually paid, tax was deducted at source, and the funds were utilized by the assessee. He reduced the disallowance to Rs. 2,136, considering 18% interest excessive and allowing 15% instead. The Tribunal upheld the CIT(A)'s decision, noting that the ITO did not establish that the balance in her account did not justify the interest claim.

4. Validity of the Assessment Order and Limitation Period:
The assessee argued that the assessment should have been completed by 31st March 1983, and the reference to the IAC under Section 144B was invalid, making the assessment barred by limitation. The CIT(A) held that the reference under Section 144B provided further opportunity for submissions, and the assessment could not be quashed on these grounds. The Tribunal noted that the assessee filed a revised return on 28th March 1983, extending the limitation period to 28th March 1984. The assessment completed on 26th September 1983 was within time, dismissing the cross-objection.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions on all issues. The disallowance of transport and manufacturing expenses was not justified, the relief under Section 80HH was correctly allowed, the interest paid to Smt. Kamlesh Gupta was partly justified, and the assessment was within the limitation period.