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2022 (12) TMI 33 - AT - Income TaxValidity of assessment - jurisdiction of the authority to act as the AO - Jt./Adl. CIT heading the Ranges - authorised officers u/s. 120(4)(b) - HELD THAT - The jurisdiction of the authority to act as the AO in a given case cannot be questioned in the appellate proceedings under the Act in view of the clear mandate of law per sec. 124, requiring all such issues to be decided through the administrative route. The assessee s legal plea questioning the territorial jurisdiction of the Addl. CIT to act as it s AO is, in view of the foregoing, without any legal force. We may before parting also clarify, inasmuch the assessee s Ground makes reference to the additional ground before the first appellate authority, that same has been rightly dismissed by him for want of authorisation, which being a part of the appeal memo, could be verified only by the appellant. He has, nevertheless, disposed of the assessee said Gd. on merits, discussed hereinbefore, being in pari materia to it s Gd. 1 before him - though we have upheld his findings, finding the assessee s plea as without substance, we clarify the clear position of law of the same as being not a subject matter of an appeal under the Act, and not liable to be resolved through the appellate procedure under the Act. No notice u/s. 143(2) stands issued by the AO, i.e., Addl. CIT, Chhindwara, after 30/11/2006, i.e., the date of order u/s. 120(4)(b) by the CIT-1, Jabalpur, authorising him to act as an AO - True, there is no issue of notice u/s. 143(2) for AY 2004-05 on or after 30/11/2006. How could, one wonders, that invalidate the notice u/s. 143(2) dated 17/3/2005 by the Asst. CIT, Circle Chhindwara, i.e., the incumbent AO, duly served on the assessee on 18/3/2005; the said notice being also within time and, thus, a valid notice seeking to assume jurisdiction to frame an assessment u/s. 143(3), and which has been by the incumbent AO on 26/12/2006, again noted by the ld. CIT(A) - Though the assessee s Ground speaks of notice u/s. 142(1) as well, the same is not a jurisdictional notice and, therefore, it s relevance in challenge to the validity of the assessment is neither understood nor explained, being also not before the ld. CIT(A), nor covered in the assessee s submissions before him. Notice u/s. 142(1) is clearly toward obtaining information deemed relevant by the assessing authority from the assessee. The second function of the said notice is to cause furnishing of a return of income where the same has not been furnished u/s. 139, and which is clearly not the case. In sum, the Ground is without merit and, accordingly, dismissed. Addition toward shortage in soybean seed account - The goods are bought at pre-determined rates fixed by the buyers (oil extraction units), on whose behalf goods are, though shown as bought and sold, bought by the assessee for a pre-determined addhat (commission). The goods are accordingly despatched from the supplier s premises direct to that of the buyer (plant owners), whereat the same are weighed and debit notes for difference/s in weight, if any, allowing for a tolerance, raised. Debit notes were also verified by the AO to find them to have been raised by the buyers (toward shortage, moisture content, damage seeds etc.) on the assessee on a regular basis, i.e., where the parameters exceeded the defined tolerance limits. Occasionally, where the assessee was able to secure a better bargain, so that its purchase rate is below its sale rate, it also benefits, i.e., apart from commission, by way of trading profit. The addition is, thus, well founded with no rebuttal at any stage and, accordingly, confirmed. Addition on account of debit notes raised on the assessee by it s buyers as found debited in the assessee s accounts on 01/4/2003, i.e., the first day of the relevant previous year - There is no evidence whatsoever that any settlement has been, as claimed, arrived at between the parties, much less during the current year, i.e., on the first day of the accounting year, on which the debit notes were entered in the accounts at full amount thereof. As the books for the previous year relating to AY 2003-04 have not been closed on 01/4/2003, information as on 01/4/2003, to the extent it relates to conditions obtaining as on 31/3/2003, would need to be taken into account for the purpose of the estimate as on 31/03/2003. This would also make it incumbent on the assessee to justify, in addition to what had transpired on 01/4/2003, its claim in full, so that an expenditure which, as on 01/4/2003, i.e., the date on which the estimate on the basis of the available information was to be made, was estimated at nil, was finally determined in full at the impugned sum of Rs. 5.04 lacs on 01/4/2003 itself, representing the total amount of debit notes-in-hand as on 31/03/2003. The assessee s claim is, clearly, without any basis on facts, as indeed in law. We therefore uphold the disallowance as confirmed by the ld. CIT(A). Disallowance of expenditure - vast difference in the rate on which hamali charges are claimed as paid (Rs. 5.08 per bag) and that by another party in the trade (rs. 0.30 0.35 per bag) - HELD THAT - It is pertinent to note that the assessee had in fact reported a net income of Rs. 13,352 under this head for the immediately preceding year. Further, the very fact that the assessee has received compensation at an average of Rs. 3.50 per bag for the year and, further, been allowed expenditure @ 0.85 per bag, implies an acceptance of expenditure at Rs. 4.53 per bag, which is the relevant rate, and not Rs. 0.85 per bag, stated as allowed by the AO. This also explains marginal income under this head for the preceding year, the reimbursement exceeding the expenditure by some paisa per bag. We find no reason for interference. We decide accordingly. Loss on ginned cotton account - HELD THAT - The loss, on the basis of an average sale rate of 5976 per qtl., qua the sale to NIPL, works to Rs. 2,84,931. Subject, therefore, to the confirmation of our working as correct, we confirm the addition at this sum. The assessee gets part relief. Disallowance of interest calculated @15% p.a.loss disallowed for AY 2004-05 and personal investment/s - Firstly, interest on loss to the extent of Rs. 5.04 lacs has been disallowed on the ground that the same does not relate to AY 2004-05, but to the immediately preceding year. That would not though impact the interest liability in its respect. The proportionate interest thereon would be Rs. 75,600. Two, the period of personal investment/s made during the year (Rs. 17.73 lacs) is not specified, so that the same stands presumably made during the relevant previous year, and not at the beginning thereof, as implied by the AO s working. Interest thereon, at an average, assuming it being spread uniformly over the year, would be at one-half that computed by him, i.e., Rs. 1,30,233. The assessee, accordingly, gets a total relief for Rs. 2,05,833. We decide accordingly. Entry tax stands disallowed u/s. 43B on it not being paid up to the date of filing the return - No evidence toward it s payment by the due date of filing the return for the year, i.e., 31/10/2005, has been brought on record. Disallowance, since confirmed, is therefore upheld. The basis for disallowance is of it being penalty under commercial tax, sales tax and entry tax. The law in the matter is well-settled, and the same cannot be an incident of business, to be accordingly allowed as a business deduction u/s. 37(1). Disallowance, confirmed on that basis, is again upheld for the same reason; the assessee not bringing any material to substantiate its claim of the same being not penalty, and compensatory in nature. We decide accordingly.
Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) 2. Issuance of notice under section 143(2) 3. Addition on account of shortage in soybean seed account 4. Addition on account of debit notes 5. Addition on account of shortage in soybean account 6. Disallowance of hamali expenses 7. Addition on account of disallowance of loss in cotton sold to sister concern 8. Disallowance of interest on borrowed funds 9. Addition under section 43B 10. Refund of excess appeal fees Detailed Analysis: Issue 1: Jurisdiction of the Assessing Officer (AO) The assessee challenged the jurisdiction of the Additional Commissioner to act as the AO, referencing an Office Memorandum dated 19/9/2011. However, the Tribunal found that the Notification No. 267 dated 17/09/2001 by the CBDT vested the power of the AO with the Jt./Adl. CIT, authorized by the CIT-1, Jabalpur on 30/11/2006. The Tribunal upheld the CIT(A)'s finding, noting that issues of jurisdiction must be resolved through administrative routes as per section 124 of the Act, not through appellate proceedings. The assessee's legal plea was dismissed as without legal force. Issue 2: Issuance of Notice under Section 143(2) The assessee contended that no notice under section 143(2) was issued by the AO after 30/11/2006. The Tribunal found that a valid notice under section 143(2) was issued by the Asst. CIT on 17/3/2005, duly served on the assessee. The notice was within time and valid, thus the assessment framed on 26/12/2006 was upheld. The ground was dismissed as without merit. Issue 3: Addition on Account of Shortage in Soybean Seed Account The assessee claimed a loss due to shortage in soybean seed account, which was found to be an unaccounted sale of accounted stock. The CIT(A) confirmed the addition of Rs. 51,200, finding the shortage as an attempt to tally stock. The Tribunal upheld this addition, noting no rebuttal from the assessee at any stage. Issue 4: Addition on Account of Debit Notes The assessee accounted for debit notes raised by buyers in the current year, which pertained to an earlier year. The CIT(A) confirmed the addition of Rs. 5,03,985, noting no evidence of any dispute or one-time settlement. The Tribunal upheld the disallowance, agreeing with the CIT(A) that the expenditure should be booked in the correct year as per the mercantile system of accounting. Issue 5: Addition on Account of Shortage in Soybean Account The addition of Rs. 2,342 for shortage in soybean account was confirmed by the CIT(A) for the same reasons as the soybean seed account. The Tribunal upheld this addition, finding no reason to take a different view. Issue 6: Disallowance of Hamali Expenses The assessee claimed hamali expenses at Rs. 10,01,281, disallowed by the AO at Rs. 8,50,261 due to a vast difference in rates compared to another party. The CIT(A) confirmed the disallowance. The Tribunal upheld this disallowance, noting no improvement in the assessee's case and finding no reason for interference. Issue 7: Addition on Account of Disallowance of Loss in Cotton Sold to Sister Concern The assessee claimed a loss on ginned cotton sold to a sister concern at a lower rate. The AO increased the sale rate, reducing the loss by Rs. 3,31,924. The CIT(A) confirmed the addition. The Tribunal upheld the addition, estimating the sale rate at Rs. 5976.02 per qtl., confirming the addition at Rs. 2,84,931, giving the assessee part relief. Issue 8: Disallowance of Interest on Borrowed Funds The AO disallowed interest on borrowed funds, calculating interest on disallowed loss and personal investments. The Tribunal found adjustments needed, reducing the disallowance by Rs. 2,05,833, giving the assessee relief. Issue 9: Addition under Section 43B The AO disallowed entry tax and penalty under commercial tax, sales tax, and entry tax. The Tribunal upheld the disallowance, finding no evidence of payment of entry tax by the due date and confirming the penalty as not an allowable business deduction. Issue 10: Refund of Excess Appeal Fees The Tribunal found that the ground for refund of excess appeal fees did not arise from the assessment order or the impugned order and dismissed it as not maintainable. Conclusion: The assessee's appeal for AY 2004-05 was dismissed, and the appeal for AY 2005-06 was partly allowed.
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