1999 (4) TMI 60 - HC - Income Tax

Summary

Issues:
1. Whether the Tribunal was right in confirming the deletion of additions of unexplained income and interest thereof.
2. Whether the promissory notes were executed in 1982 and had already been subjected to tax in a previous assessment year.
3. Whether the interest income should be taxed on a receipt basis as the assessee was not following the mercantile system of accounting.

Analysis:

1. The Commissioner of Income-tax sought direction under section 256(2) of the Income-tax Act, 1961, regarding the deletion of additions of unexplained income and interest by the Income-tax Appellate Tribunal. The Tribunal confirmed the deletion based on findings that the promissory notes were executed in 1982 and the income had already been taxed in a previous assessment year. The Tribunal also deleted the interest addition as the assessee was not following the mercantile system of accounting.

2. The facts revealed that during a search at the assessee's premises, promissory notes were found, with one dated 1982 and the others lacking clear dates. The Assessing Officer added the amount of the undated promissory notes to the assessee's income for the assessment year in question. The assessee argued that the amount had already been taxed in a prior year. The Commissioner of Income-tax (Appeals) found evidence that the promissory notes were executed in 1982 and had been taxed in the previous assessment year, leading to the deletion of the additions.

3. The Commissioner of Income-tax (Appeals) further deleted the addition of interest on the promissory notes, amounting to Rs. 24,000, as the assessee was not maintaining accounts on the mercantile system. It was found that the promissory notes were with the Department, making it impossible for interest to accrue. The Tribunal affirmed these findings, leading to the rejection of the application under section 256(1) as the issues were primarily based on factual findings rather than legal questions.

In conclusion, the Tribunal's decision to reject the application was deemed appropriate as the findings were factual in nature and did not raise any legal questions. The deletion of additions and interest was justified based on the evidence that the income had already been taxed in a previous year and the assessee was not following the mercantile system of accounting.