1999 (11) TMI 7 - HC - Income Tax

Summary

Issues:
1. Interpretation of debit in profit and loss account under amnesty scheme.
2. Admissibility of redrafted trading and profit and loss account.
3. Treatment of accumulated income hidden under stock.

Issue 1: Interpretation of debit in profit and loss account under amnesty scheme
The case involved the interpretation of a debit of Rs. 52,66,963 in the profit and loss account for the year ended April 30, 1986, under the amnesty scheme. The Assessing Officer added this amount to the total income, contending that it was against accounting principles to debit the amount offered for assessment in earlier years to the profit and loss account. The assessee argued that the amount offered under the amnesty scheme was included in the closing stock value. The Commissioner of Income-tax (Appeals) upheld the addition, stating there was no material to show the closing stock included unaccounted stock. However, the Tribunal noted that the redrafted account reflected the amount as understated stocks, in line with the assessee's plea. The Tribunal considered the format of the declaration under the amnesty scheme and concluded the addition made by the Revenue authorities should be deleted.

Issue 2: Admissibility of redrafted trading and profit and loss account
The Tribunal observed that the redrafted account did not introduce new figures but merely changed the description of the items debited. The items were moved to the trading account and specifically labeled as stocks from the years ending in 1983, 1984, and 1985. The Revenue argued that the revised returns did not mention understatement of stocks, implying the assessee's plea was an afterthought. However, the Tribunal found that the assessee's explanation was plausible, considering the lack of requirement to declare the form of concealed income under the amnesty scheme until a clarification was issued. The Tribunal accepted the assessee's stance and held that the accumulated income hidden under stock should not be upheld.

Issue 3: Treatment of accumulated income hidden under stock
The Tribunal considered various factual aspects highlighted by the assessee, including the submission of a proposal for higher income declaration under the amnesty scheme. The Tribunal noted that the assessee had made journal entries reflecting understated stocks and filed an affidavit supporting the claim of income escaping assessment due to understated stock. It compared the disclosure requirements of the Voluntary Disclosure Scheme, 1975, and the amnesty scheme, finding no obligation to specify the form of concealed income under the latter. The Tribunal concluded that the assessee's inability to indicate the form of understatement until a clarification was issued was plausible and accepted the explanation. The Tribunal's decision was based on a thorough analysis of the factual position, and no question of law was found to arise.

In conclusion, the High Court declined to answer the questions raised, considering them factual in nature and ruled in favor of the assessee against the Revenue.