1.  THE COMMISSIOINER OF INCOME TAX, COCHIN Vs. M/S. INDIA SEA FOODS, THOPPUMPADY, KOCHI, ITA. No. 128 of 2010, Dated : 17/01/2011, HIGH COURT OF KERALA

The fact that the Assessing Officer initiated rectification proceedings under Section 154 does not mean that he should stick to the same only and proceed to issue orders as proposed. If the assessee convinces the officer that rectification is not permissible, the Assessing Officer is absolutely free to give up the same and see whether there is any other recourse open to him to achieve the purpose i.e. to bring to tax escaped income. There was nothing wrong in the Assessing Officer giving up rectification proceedings, though initiated by him based on reply filed by the assessee and then initiating an income escaping assessment by issuing notice under Section 148 within the statutory period. Since there is no challenge on merits of the case i.e. with regard to withdrawal of excessive relief granted under Section 80HHC, the reassessment completed under Section 147 will stand restored.

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2.  M/S MOHAN & CO. Vs. DEPUTY COMMISSIONER OF INCOME TAX, ITA No. 1069/Mum/2010, Dated : December 22, 2010, INCOME TAX APPELLATE TRIBUNAL - MUMBAI

That the AO had applied the provisions of Sec 40A(2)(b) in making the disallowance which means that the AO was satisfied that the expenditure in question was one having incurred wholly and exclusively for the purpose of business. The failure of the Assessee according to the AO was only in not furnishing the details of what services were rendered, any correspondence or debit notes for services rendered being produced to make a meaningful enquiry on the issue, that the assessee had not proved that there was a legitimate business need for the assessee to avail any services / facilities and what benefit had been derived by the assessee on account of reimbursement of the aforesaid three heads of expense.

In these circumstances, the AO could not had made disallowance of the entire expenditure and the disallowance had to be restricted to only to the extent the expenditure was excessive or unreasonable. Regarding payment for salary and conveyance expenses submitted the debit note but the AO had not made any enquiry and therefore, disallowance is deleted. Regarding reimbursement of motor car expenses, the assessee failed to furnish necessary details hence adhoc disallowance @ 25% is made u/s 40A(3) in respect of the increase in the expenses to the sister concern in comparision to the preceding year, the Assessee had not produced any evidence to substantiate the increase in payment of charges in this A.Y. compared to the earlier year. The submissions made are very general without any supportive evidence. The order of the CIT (A) was set aside and an opportunity was given to the assessee to submit evidence to substantiate the submissions and the payment to its sister concern, the nature of services rendered and as to how the same are within the parameters laid down in Sec.40-A(2)(a) of the Act. Disallowance u/s 40-A(2)(b) is not possible without proper details.

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3.   [Contribution by  CA. Manoj Gupta, and contributor is available on Mobile No. 9350760606 / email-id: mgupta2803@gmail.com ]

A Useful Article on "Tail Risk and its Hedging"

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