1993 (4) TMI 115 - AT - Income Tax

Summary

Issues Involved:

1. Limitation of the assessment order.
2. Validity of directions issued by DC Udaipur.
3. Proper opportunity of being heard.
4. Quantum of income estimation.
5. Depreciation allowance and capitalisation of expenses.
6. Addition of Rs. 22,500 on account of sale of scrap.
7. Allowance of interest paid to creditors.

1. Limitation of the Assessment Order:

The assessee contended that the assessment order was barred by limitation because it was not passed by 31-3-1989. The learned D.R. argued that the acknowledgment slips showed the assessment order and penalty notices were served on 31-3-1989, implying timely passage and service. However, the tribunal found force in the assessee's submissions, noting that the CIT(A) did not adequately address the evidence provided, including letters and an affidavit indicating the assessment order was not received until after 31-3-1989. The tribunal concluded that the assessment order was indeed passed after 31-3-1989, thus barred by limitation.

2. Validity of Directions Issued by DC Udaipur:

The assessee argued that the directions issued by DC Udaipur were invalid as they were issued without a proper hearing. The tribunal noted repeated affirmations from the assessee and no counter-affidavit from the DC Udaipur or his Inspector. The CIT(A) failed to adequately investigate whether the DC Udaipur was available on the appointed dates. The tribunal agreed with the assessee, concluding that the directions under section 144A were issued without a proper hearing, making them invalid.

3. Proper Opportunity of Being Heard:

The tribunal emphasized that the opportunity to be heard under section 144A should be a real opportunity. The DC Udaipur's letters did not specify the purpose of the hearing or the proposed directions, leaving the assessee uninformed. The tribunal held that the directions were issued without complying with the proviso to section 144A, making the assessment order based on those directions invalid.

4. Quantum of Income Estimation:

The tribunal found that the CIT(A) had no basis for estimating the income from six buses at Rs. 80,000, especially when one bus ran only for 12 days. The CIT(A) disapproved of the DC Udaipur's computation method and failed to provide a reasonable basis for the income estimate. The tribunal concluded that the assessee's profits before depreciation, disclosed at Rs. 54,308, were reasonable and should have been accepted.

5. Depreciation Allowance and Capitalisation of Expenses:

The tribunal noted that the Revenue objected to the assessee capitalizing its revenue expenses, contrary to normal practice. The IAC Jodhpur's directions to verify the factual position and follow established principles were not followed. The tribunal held that the assessee's claim for capitalisation of expenses should be accepted. Regarding depreciation, the tribunal agreed that the WDV should be based on depreciation actually allowed, not allowable, thus supporting the assessee's method.

6. Addition of Rs. 22,500 on Account of Sale of Scrap:

Since the tribunal directed that the book results of the assessee be accepted, it implied that the cost of operation was already reduced by the sale proceeds of the scrap. Therefore, no separate addition for the sale of scrap was warranted.

7. Allowance of Interest Paid to Creditors:

The tribunal found no material evidence to show that the money on which interest was paid was not utilized for the assessee's business. Hence, no disallowance for the payment of interest could be made.

Conclusion:

Except for Ground No. 1(c), all objections of the assessee in the Grounds of Appeal were allowed, and thus, the appeal was partly allowed.