1996 (10) TMI 132 - AT - Income Tax

Summary

Issues Involved:
1. Assumption of jurisdiction u/s 263 by the Commissioner of Income-tax.
2. Disallowance of payments for rice-husk purchases u/s 40A(3).
3. Disallowance of London office expenses u/s 37(1).

Summary:

1. Assumption of Jurisdiction u/s 263:
The Commissioner of Income-tax (CIT) invoked section 263 of the Income-tax Act to cancel the assessment order dated 31-3-1994, deeming it erroneous and prejudicial to the interests of revenue. The CIT argued that the Assessing Officer (AO) failed to make necessary enquiries regarding payments for rice-husk purchases and London office expenses. The Tribunal found that the AO had indeed made the necessary enquiries and had applied his mind before completing the assessment. Therefore, the order was neither erroneous nor prejudicial to the interests of revenue.

2. Disallowance of Payments for Rice-Husk Purchases u/s 40A(3):
The CIT contended that the assessee did not furnish true and complete particulars for payments made towards rice-husk procurement, particularly payments exceeding Rs. 10,000, which are hit by the provisions of section 40A(3). The Tribunal noted that the AO had called for and examined the requisite details, including cash payments exceeding Rs. 10,000. The payments were found to be covered by exceptions provided in Rule 6DD(j) and Circular No. 220 dated 31-5-1977 of the CBDT, as there were no banking facilities at Hamira. Thus, the AO's decision was upheld.

3. Disallowance of London Office Expenses u/s 37(1):
The CIT argued that expenses for the London office were personal in nature and not connected with the assessee's business. The Tribunal observed that the London office was opened with prior permission from the Reserve Bank of India (RBI) and was used to promote business interests, including exports. The AO had examined all relevant details, including RBI permissions and remittances for London office expenses, before allowing the claim. The Tribunal found no basis for the CIT's contention and upheld the AO's decision.

Conclusion:
The Tribunal concluded that the AO had made reasonable and requisite enquiries on both issues before completing the assessment. The CIT's assumption of jurisdiction u/s 263 was deemed unjustified, and the order of assessment dated 31-3-1994 was restored. The appeal was allowed.