Law: Income Tax Act, 1961

Section: 256(1),144B

Section 144B [omitted w.e.f. 1-4-1989] of the Income-tax Act, 1961 - Assessment - Draft assessment order - Assessment year 1972-73 - Whether IAC has power to direct ITO to make disallowance and thereby enhance assessment or reduce loss suffered by assessee - Held, no - Whether even otherwise if an expenditure is lawfully allowable direction of authorities to disallow it would be invalid - Held, yes Section 37 of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1972-73 - Whether charges paid for preparation of feasibility report of project are allowable revenue expenditure - Held, yes -Whether if an expenditure is lawfully allowable direction of an authority to disallow it would be ultra vires - Held, yes FACTS For the assessment year 1972-73 the ITO disallowed the assessee's claim for deduction of a sum as charges for preparation of feasibility report of its project as per directions of the IAC under section 144B. The AAC upheld the disallowance. On appeal before the Tribunal the assessee contended inter alia that in the draft assessment prepared by the ITO it was not disallowed and, therefore, the disallowance of this amount as a result of the direction of the IAC in his order under section 144B was illegal. It was contended that the scope of section 144B was limited to the objection which the assessee raised and the IAC could not give any direction where there was no objection by the assessee. The Tribunal negatived the contentions of the assessee. On reference, the revenue contended inter alia that the question referred by the Tribunal was not the question asked for by the assessee; it was altogether a new question which the Tribunal had no jurisdiction to refer to this Court. HELD In the instant case, in the draft assessment order, the amount claimed as expenditure was not disallowed by the ITO. Therefore, the question of disallowance of the sum could not have been covered by the objection raised by the assessee. The IAC had directed disallowance of an expenditure which was allowed by the ITO in the draft assessment order. The IAC does not have the power to direct the ITO to make the disallowance and thereby enhance the…

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