2007 (12) TMI 251 - AT - Income Tax

Issues Involved:
1. Validity of assessment order u/s 143(3).
2. Validity of action taken u/s 147 r/w s. 148.
3. Validity of assessment order due to non-service of notice u/s 143(2).
4. Application of provisions of s. 145(3) and consequent addition.
5. Disallowance of depreciation on new plant and machinery.
6. Disallowance of depreciation on new building.
7. Treatment of expenditure on color TV as capital expenditure.
8. Disallowance of advocate fees.
9. Ad hoc disallowance of various expenses.
10. Charging of interest u/s 234B, 234D, and 244A.
11. General grounds.

Summary:

1. Validity of Assessment Order u/s 143(3):
The assessee challenged the assessment order dated 25th Jan., 2006, claiming it was bad in law and lacked jurisdiction. The Tribunal found that the notice u/s 143(2) was served after the statutory period, rendering the assessment order void and without jurisdiction. Thus, the impugned assessment was quashed.

2. Validity of Action Taken u/s 147 r/w s. 148:
The assessee argued that the notice u/s 148 issued on 8th April, 2004, was premature as the time to issue a notice u/s 143(2) had not expired. The Tribunal agreed, citing precedents that initiation of proceedings u/s 148 before the expiry of the period for issuing notice u/s 143(2) is invalid. Consequently, the notice and the assessment were quashed.

3. Validity of Assessment Order Due to Non-Service of Notice u/s 143(2):
The Tribunal noted that the notice u/s 143(2) was served after the expiry of the 12-month period from the end of the month in which the return was filed. Therefore, the assessment order was quashed for being without jurisdiction.

4. Application of Provisions of s. 145(3) and Consequent Addition:
The AO invoked s. 145(3) due to alleged defects in the valuation of closing stock and yield rates. The Tribunal found that the assessee consistently followed a method of accounting, and the minor difference in yield was not substantial. The addition of Rs. 32,43,594 was deleted, and the order of the CIT(A) was reversed.

5. Disallowance of Depreciation on New Plant and Machinery:
The AO disallowed depreciation on new plant and machinery, questioning its installation and use. The Tribunal found that the machinery was put to use, and passive use also qualifies for depreciation. The disallowance was deleted, and the CIT(A)'s decision was reversed.

6. Disallowance of Depreciation on New Building:
The AO disallowed depreciation on the new factory building, claiming it was incomplete. The Tribunal held that since the plant and machinery were operational, the building was in use. The disallowance was deleted, and the CIT(A)'s decision was reversed.

7. Treatment of Expenditure on Color TV as Capital Expenditure:
The AO treated the purchase of a color TV as capital expenditure. The Tribunal concurred with the CIT(A) that the expenditure was capital in nature. Thus, the ground was dismissed.

8. Disallowance of Advocate Fees:
The AO disallowed advocate fees, claiming it did not accrue in the relevant financial year. The Tribunal found the provision for fees valid under the mercantile system of accounting. The disallowance was deleted, and the CIT(A)'s decision was reversed.

9. Ad Hoc Disallowance of Various Expenses:
The AO made ad hoc disallowances for personal and non-business expenses. The Tribunal found no infirmity in the CIT(A)'s reasoned decision to sustain some additions and allow some relief. Thus, the ground was dismissed.

10. Charging of Interest u/s 234B, 234D, and 244A:
The Tribunal noted that the charging of interest is mandatory and consequential.

11. General Grounds:
The Tribunal found the general grounds raised by the assessee did not require adjudication.

Conclusion:
The appeal was partly allowed, with several disallowances and additions being deleted, while some grounds were dismissed.

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