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2004 (8) TMI 343 - AT - Income TaxValidity of assessment proceedings initiated u/s 143(3)/147 - Violation of CBDT instructions - HELD THAT - It is clear from the records that none of the conditions stipulated by the Board for taking up case for scrutiny are applicable on the assessee. The learned DR has not been able to place before me any record showing approval of Chief CIT for selection of case for scrutiny. It is trite law that Board instructions/circulars being benevolent in nature are binding on Revenue and all the officers of IT Department are legally bound to follow the said instructions/circulars. A person may have a legitimate expectation of being treated in a certain way by an administrative authority even though he has no legal right in private law to receive such treatment. The expectation may arise either from a representation or promise made by the authority, including an implied representation or from consistent past practice. The Board has widely publicised its intention in leading newspapers too and the learned Authorised Representative of the assessee filed a copy of news item in Economic Times dt. 9th March, 2001 placed at p. 30 of paper book wherein it was stated that IT Department has decided against scrutiny of tax returns for the second year in a row as a part of its drive to promote the image of an assessee-friendly tax Department. Thus, AO was not justified in taking up the case of the assessee for scrutiny in violation of the promise contained in the said instructions. Though on this short ground, the assessment so framed deserves to be quashed. I am supported in my view by the apex Court judgment in the case of Navneetlal Javeri vs. K.K. Sen, 1964 (10) TMI 16 - SUPREME COURT . Therefore, scrutiny case in violation of CBDT instructions are bad in law and I quash the assessment framed by the AO for all the three years.
Issues Involved:
1. Validity of assessment proceedings initiated u/s 143(3)/147. 2. Disallowances of various expenses by the AO. 3. Additions made by the AO to the declared gross profit. 4. Disallowances of travelling expenses by the AO. 5. Disallowance of discount expenses claimed by the assessee. Summary: Issue 1: Validity of Assessment Proceedings The assessee argued that the assessment proceedings should be quashed as the cases were selected for scrutiny in violation of Board's Instruction Nos. 1967 and 1984. The Tribunal held that the AO was not justified in taking up the case for scrutiny in violation of the Board's instructions. The Tribunal quashed the assessment framed by the AO for all three years, citing the doctrine of legitimate expectation and binding nature of Board instructions. Issue 2: Disallowances of Various Expenses - Staff Welfare Expenses: The Tribunal found the expenses reasonable considering the turnover and number of employees. Disallowances of Rs. 3,823, Rs. 4,013, and Rs. 4,258 for the respective years were deleted. - Shop Expenses: The Tribunal deleted the disallowance of Rs. 688 for the assessment year 1995-96, considering the meager claim. - Postage and Telephone Expenses: The Tribunal reduced the disallowances to Rs. 1,500 each for the assessment years 1995-96 and 1996-97, and Rs. 2,000 for the assessment year 1997-98. - Interest Account: The Tribunal deleted the disallowance of Rs. 6,813, holding that the interest paid was not excessive or unreasonable. - Service Charges Account: The Tribunal deleted the disallowances of Rs. 16,050 and Rs. 43,562 for the assessment years 1996-97 and 1997-98, respectively, considering the nature of expenses and details filed. Issue 3: Additions to Declared Gross Profit The Revenue's appeal against the deletion of additions to the declared gross profit was dismissed. The Tribunal found no infirmity in the CIT(A)'s order, which had elaborately discussed the issue and held that the AO's application of a 12.5% gross profit rate was not justified. Issue 4: Disallowances of Travelling Expenses The Tribunal upheld the CIT(A)'s deletion of disallowances of Rs. 96,000, Rs. 1,41,600, and Rs. 1,08,000 for the respective years. The Tribunal noted that the employees' statements were verified, and the assessee was not allowed to cross-examine the witnesses initially. The Tribunal found the CIT(A)'s reasoning justified. Issue 5: Disallowance of Discount Expenses The Tribunal upheld the CIT(A)'s deletion of the disallowance of Rs. 27,420 out of the discount account. The Tribunal found no infirmity in the CIT(A)'s order, which was in accordance with the provisions of s. 36(1)(vii). Conclusion: The appeals of the assessee were allowed, and the appeals of the Revenue were dismissed. The Tribunal quashed the assessment proceedings and deleted various disallowances and additions made by the AO.
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