1993 (7) TMI 129 - AT - Income Tax

Summary

Issues Involved:
1. Validity of assessment under section 144 instead of section 143(3).
2. Validity of the return filed on 30th March 1985.
3. Non-compliance with notices issued by the Assessing Officer.
4. Disallowance of Rs. 6600 under section 40A(3).
5. Disallowance of Rs. 6305 as bad debts.
6. Levy of interest under sections 139(8) and 215/217.

Issue-wise Detailed Analysis:

1. Validity of Assessment under Section 144:
The appellant firm contended that the assessment should have been made under section 143(3) instead of section 144. The Tribunal noted that the tax liability would not be affected by whether the assessment was under section 144 or 143(3). However, the Tribunal decided to address the issue due to its potential implications for penalty and other proceedings.

2. Validity of the Return Filed on 30th March 1985:
The return filed on 30th March 1985 was initially treated as invalid by the Assessing Officer for two reasons: it was not accompanied by trading account, profit and loss account, balance sheet, etc., and it was filed after the completion of assessment under section 144. The Tribunal found that the return was defective but not invalid, as the Assessing Officer did not follow the procedure under section 139(9) to notify the defects and allow rectification. Additionally, the Tribunal held that the return, though filed after the assessment, became valid upon the cancellation of the section 144 assessment on 15th November 1985.

3. Non-compliance with Notices:
The Tribunal considered the appellant's claim that there was no non-compliance with the notices issued by the Assessing Officer. The Tribunal accepted this claim based on written submissions and found that the assessment should be deemed to have been made under section 143(3).

4. Disallowance of Rs. 6600 under Section 40A(3):
The disallowance was made for payments to M/s. Avon Sales Company. The Tribunal noted that the Assessing Officer did not provide an opportunity for the appellant to be heard before making the disallowance. The Tribunal deleted the disallowance, citing the CBDT Circular No. 220, which allows for cash payments if the payee insists and provides necessary tax details.

5. Disallowance of Rs. 6305 as Bad Debts:
The Tribunal considered the small amounts involved and the appellant's prudence in not pursuing legal recovery. The Tribunal found that the conditions for writing off bad debts were satisfied and deleted the addition.

6. Levy of Interest under Sections 139(8) and 215/217:
The appellant objected to the levy of interest without being given an opportunity to be heard. The Tribunal noted that the first appellate authority only allowed consequential relief without addressing the specific ground raised by the appellant. The Tribunal set aside the relevant part of the CIT(A)'s order and remanded the issue for fresh disposal in accordance with law.

Conclusion:
The Tribunal partly allowed the appeal, holding that the return filed on 30th March 1985 was valid as of 15th November 1985, the disallowances under sections 40A(3) and for bad debts were deleted, and the issue of interest levy was remanded for fresh consideration.