TMI Blog2004 (8) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 4,013 and Rs. 4,258 out of staff welfare expenses (for three years respectively) (b) Rs. 688 out of shop expenses (asst. yr. 1995-96) Rs. 3,029, Rs. 3,742 and Rs. 5,049 out of postage and telephone expenses (for three years respectively) (c) Rs. 6,813 out of interest account (asst. yr. 1995-96) Rs. 16,050, Rs. 43,562 out of service charges account (for asst. yrs. 1996-97 and 1997-98) 3. That the appellant craves the leave to amend or alter any of above grounds and further to take additional ground or grounds on or before the date of hearing." 4. Below reproduced are the common grounds of appeal raised by the Revenue in all its appeals: "1. On the facts and in the circumstances of the case, learned CIT(A) erred (i) in deleting the addition of Rs. 6,590, Rs. 83,338 and Rs. 1,01,820 made by the AO to the declared gross profit in motorcycle parts and tractor parts account (respectively for all 3 years) (ii) in deleting the addition of Rs. 96,000, Rs. 1,41,600, and Rs. 1,08,000 made by the AO by disallowing part of the travelling expenses claimed (respectively for all three years). (iii) in deleting the addition of Rs. 27,640 made by the AO by disallowing the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch, 2000, declaring income/loss as under: Asst. yr. Income/(Loss) 1995-96 Rs. (838) 1996-97 Rs. (15,322) 1997-98 Rs. Nil 11. The AO issued notice under s. 143(2) on 14th Aug., 2000 fixing the case for hearing on 18th Aug., 2000. The assessee objected before the AO regarding issue of notice under s. 143(2) on the basis of Board s Instruction No. 1984, dt. 9th June, 2000 and submitted before the AO that his case did not fall within the ambit of reassessment under s. 147 of the IT Act, 1961 and the proceeding should be dropped. However, the above contention of the assessee was not accepted by the AO. The assessee moved an application under s. 144A before the Addl. CIT, Range-I, Jabalpur, for necessary direction to AO not to scrutinise the assessment on the basis of notice under s. 143(2), on the basis of Board s instructions. However, the Addl. CIT passed direction under s. 144A dt. 2nd March, 2001 directing the AO to proceed with the assessment. 12. Accordingly, the AO passed the assessment orders dt. 29th March, 2001, and determined income as under after giving credit to income declared under VDIS 1997: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CTR (SC) 88 : (1999) 237 ITR 889 (SC). It was further stated that, like Board s circulars, instructions by Board too are binding on AO and for this purpose, he relied on judgment reported as CIT vs. Abdul Ahad Najar (2001) 169 CTR (J K) 273 : (2001) 248 ITR 744 (J K). The learned Authorised Representative of the assessee filed a copy of judgment of Hon ble Madhya Pradesh High Court in the case of CIT vs. Ladharam Lakhimal (2000) 164 CTR (MP) 341 : (2000) 245 ITR 340 (MP), wherein the assessment proceedings were quashed on the ground that requisite approval for issue of notice under s. 143(2) was not obtained from Ranga Dy. CIT. The learned Authorised Representative of the assessee also filed a copy of judgment decided by Tribunal, Hyderabad Bench in the case of Smt. Nayana P. Dedhia vs. Asstt. CIT (2004) 84 TTJ (Hyd) 233 : (2003) 86 ITD 398 (Hyd) wherein the scrutiny assessment was quashed for not following CBDT instructions. It was held that taking up assessment for scrutiny in contravention of Board s instruction was not justified at all. The learned Authorised Representative of the assessee further stated that if the Department wanted to scrutinise the assessment, it could have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iny. 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. 19. In the light of above case laws and the doctrine of legitimate expectation, I hold that the AO was not justified in taking up the case of the assessee for scrutiny in violation of the promise contained in the said instruction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o some other loan creditors. It was stated that Shri Neeraj Agarwal has been paid interest @ 18 per cent since asst. yr. 1992-93 and no further amount was received during the year. It was also claimed that partners of firm have been paid interest @ 18 per cent on their capital in accordance with provisions contained in s. 40(b) and have been allowed by AO. Rate of interest charged by bank was 18 per cent to 21 per cent during this period, as such interest paid to Shri Neeraj Agrawal @ 18 per cent is not excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business and s. 40A(2)(b) is not applicable. He drew my attention to decision in the case of Omkarmal Gaurishanker vs. ITO (1991) 39 TTJ (Ahd) 223 and a copy of same is placed at p. 117 of the paper book wherein interest paid ranging between 12 per cent to 24 per cent to family members was held to be reasonable. The learned Departmental Representative relied upon the order of CIT(A). Looking to the facts and history of the case, I hold that s. 40A(2)(b) is not applicable in the instant case and accordingly, disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. As such, the AO has correctly applied gross profit of 12.5 per cent for all the 3 years and CIT(A) was not justified in deleting the additions on account of gross profit for all 3 years. 28. The learned Authorised Representative of the assessee drew my attention to gross profit chart filed at p. 118 of paper book and stated that sales have gone up by 60 per cent in asst. yr. 1995-96 and 250 per cent in asst. yr. 1997-98. It was stated that purchase and sales are fully supported by bills and no defect has been pointed by AO in method of accounting. Proviso of s. 145 has not been applied by AO and simply non-maintenance of stock register is no ground for making such huge additions looking to the past and subsequent years trend. It was stated that AO has verified only one sale bill dt. 28th March, 1997 mentioned at p. 13 of the order of AO and came to the conclusion that gross profit rate of 12.5 per cent should be applied for all 3 years. It was submitted that principal of appellant-firm M/s Agarwal Tractors were adjudged as best dealer on all India basis for asst. yr. 1996-97 and second best dealer in a row for asst. yr. 1997-98. It was claimed that for a person having its bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant was not allowed any opportunity to cross-examine the witnesses. When the matter was taken up before CIT(A), the CIT(A) directed the AO to allow opportunity of cross-examination and submit his remand report. In remand report, the AO conceded before CIT(A) that the said employees have accepted and verified their signatures made on vouchers for advance taken against travelling expenses. The learned Authorised Representative of the assessee also filed copies of statement recorded on oath by AO of above two employees, which is placed at page Nos. 134 to 141 of paper book. He drew my attention that both employees have categorically stated that expenditure on travelling allowance varies from year to year and depends upon volume of work. The learned Authorised Representative of the assessee submitted that in asst. yrs. 1996-97 and 1997-98, the appellant-firm got service commission on 291 and 277 tractors, respectively as compared to 117 tractors in asst. yr. 1995-96 and this fact has been mentioned by CIT(A) in his order. The learned Authorised Representative of the assessee drew my attention to order of CIT(A) for asst. yr. 2000-01 in the case of Agarwal Tractors placed at page Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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