Remediable draw backs. - Income Tax - 376/CBDT

INSTRUCTION NO. 376/CBDT Dated: February 1, 1972 Section(s) Referred: 143(3) Statute: Income - Tax Act, 1961 Reference is invited to Board's Instruction No. 21 F. 50/322/68-ITJ(2) dated the 6th February, 69, and Instructions No. 158 F. 50/257/69-ITJ dated the 17th April, 70 and to say that in paragraph 4.26 of their 73rd Report (also para 1.23 of 76 Report and paras 1.54-56 of 100th Report), the Public Accounts Committee had desired that for gauging the problem of over-pitched assessments, a sample study may be made also of the orders of the appellate authorities higher than the Appellate Assistant Commissioners. such a study was carried out in respect of two I.A.Cs ranges in Delhi, for orders received during 1967-68 to 1969-70 2. The report on the study shows that while the orders of the higher courts involved only questions of law, which are largely a matter of interpretation, the orders of the Tribunal also involved questions of fact which were disputed. While the relief allowed in the Tribunal's orders on account of factors like difference in interpretation of law, availability of subsequent decisions of higher appellate authorities, admission of fresh evidence and the like, is unavoidable a number of orders showed certain remediable draw backs as discussed below. Draw backs Remedial safe-guards 1. Reduction in gross profit rate In the Boards Circular No. 26 of 1956 applied or ad hoc addition made to dated 26-7-56, it was pointed out the trading results, because that information regarding comparable comparable cases were not quoted. cases in support of the G.P rate applied or the trading results aimed at, should be given by the ITOs in a confidential note below the assessment order; in the Board's subsequent Circular No. 23 of 1957 dated 8-6-57, it was also desired that a Register for recording reasonable gross profits shown by various trades and industries in the area should be maintained for reference. These Instructions have to be carefully followed. 2. Expenses disallowed wholly or For disallowing expenses, the ITOs partly with only general should make out a tenable case; observations. instead of only making a general observation that the expenses under a particular head were unvoiced/unproved/undetailed, a few instances should be cited and the size of disallowance cogently set out in this context. 3. Disallowance of Directors' For any disallowance of Directors' remuneration as excessive, with remuneration it is not enough to do only general observations. it as excessive but all the relevant factors of the situation should be examined and disallowance supported by proper facts and arguments. 4. Addition of cash credits with- Attention is invited to earlier out due enquiry and consideration. Circulars on the subject particularlyD.I (Inv.)'s No. 4 of 1960 dated 30th March, 1960 and the Board's instruction No. 218, dated 18-9-1970. The questions of onus, proper opportunity cross examination etc. should be carefully considered. 5. Additions on account of Where the amounts involved are small inadequate drawings for personal and sufficient justification is not and household expenses, without forthcoming, no additions need be sufficient supporting data. made and where the amounts are sufficiently large from the tax potential point of view adequate enquiry should be made and sufficient facts and reasons given for making such additions. 6. Concealment penalties under For the law as it stood before the section 271(1)(c) and the insertion of explanation from Explanation thereunder, without 1.4.1964 reference is invited to making out a proper case. Board's Instruction No 198, F 284/33/70-IT(Inv.) dated 14-8-70 issued on receipt of the Supreme Court Judgment in the case of CIT Vs.Anwar Ali 76 ITR 696. Concealment penalty under the preconcealment in fairly established or in circumstances, as for example, mentioned in the Delhi High Court judgment in the case of M/s. Durga Timber Works Vs. CIT 79 ITR 63. For cases of penalty based on Explanation should be explicitly canvassed and relied upon vide Board's Instruction No 325 F.No. 267/607/71-ITJ dated22-9-71. Secondly, although the validity of the Explanation has been upheld in Allahabad High Court Judgment in the case of Sayeed Ahmed vs. CIT 79 ITR 28 and the general principles of onus under the Explanation stated in the Kerala High Court Judgment in the case journal, page 586), the trend of the appellate authorities generally is to weight the factual circumstances of the case with a measure of strictness even under the Explanation. It is necessary therefore that for concealment penalty relying on the Explanation, a fairly cogent case should be made out that the assessee had failed to discharge its onus under Explanation. Favourable decisions from the Tribunal and may be later from High Courts, whenever available in a Commisioner's charge, should be circulated to officers in that charge and also to other Commissioners for circulation in their charge, for serving as helpful guidelines. Some Commissioners, on the request of the Board, have recently furnished to the Board copies of such favourable orders from the Tribunal Benches in their charge and they are requested to circulate these orders early as indicated above. 3. The Commissioners/Additional Commissioners of Income-tax are requested to apprise the Inspecting Assistant Commissioners, Authorised Representatives and Income-tax Officers in their charge accordingly; copies may be endorsed to A.A.Cs. also.