1993 (3) TMI 359 - Commission - Income Tax

Issues Involved:
1. Purchases from Parshuram Metal Industries (PMI)
2. Additions under section 40A(3)
3. Estimation of business income under section 145(2)
4. Charging/waiver/reduction of interest
5. Penalties and immunity under section 245H

Detailed Analysis:

1. Purchases from Parshuram Metal Industries (PMI):
The petitioner argued that only the peak amounts of purchases debited as purchases from PMI should be disallowed, claiming that the bills obtained from PMI were bogus but the actual purchases were genuine. They explained that cash purchases were made from other dealers who did not provide bills, and bogus bills from PMI were used to account for these transactions. However, the Settlement Commission found that the petitioner failed to provide a satisfactory quantity tally of goods for the relevant years. The Deputy Director of Investigation reported that the petitioner could not establish the quantitative tally of opening stock and purchases with sales and closing stock. Consequently, the Commission concluded that the debits in respect of purchases from PMI were mere bogus debits inflating the total purchases account, and there was no material to support the claim of corresponding cash purchases. The Commission decided to disallow the entire amount of purchases from PMI, rejecting the petitioner's proposal to disallow only the peak amounts.

2. Additions under section 40A(3):
The Income Tax Officer (ITO) noticed several purchases made by cash payment and made additions under section 40A(3) for the assessment years 1982-83 to 1984-85. The petitioner suggested that the addition under section 40A(3) should be restricted to half of the total addition worked out by the ITO for each year. The Commission, however, found that the petitioner conceded that part of the purchases were not allowable as deduction for want of proof and another part not allowable as payment was made in cash exceeding Rs. 2,500. Given the lack of a quantity tally, the Commission decided to reject the book results and estimate the business income under section 145(2).

3. Estimation of business income under section 145(2):
The Commission decided to estimate the business income under section 145(2) due to the lack of a satisfactory quantity tally and the issues with the purchases from PMI and cash purchases. The Commission computed the total income for the three years by making lump sum additions of Rs. 1 lakh, Rs. 1.5 lakhs, and Rs. 3 lakhs for the assessment years 1982-83, 1983-84, and 1984-85, respectively. The assessment orders passed by the ITO under section 143(3) for these years were set aside, and the total income was computed as per the annexures provided.

4. Charging/waiver/reduction of interest:
For assessment year 1982-83, the Commission directed that no interest would be charged under sections 139(8), 215, 217, and 217(1A). For assessment year 1983-84, interest under section 139(8) would be charged according to law, and interest under section 215/217 would be charged based on the total income computed by the Commission for the period from 1-4-1983 to 31-8-1984. For assessment year 1984-85, there was no liability for interest under section 139(8), and interest under section 215/217 would be charged based on the total income computed by the Commission for the period from 1-4-1984 to 15-6-1985.

5. Penalties and immunity under section 245H:
Penalties leviable under sections 271(1)(a), 271(1)(b), 271(1)(c), and 273 of the Act were waived. The petitioner was granted immunity under section 245H from prosecution under any provisions of the Act with regard to the case covered by this settlement. The order would be declared void if it was subsequently found by the Settlement Commission that it had been obtained by fraud or misrepresentation of facts.

Conclusion:
The Settlement Commission rejected the petitioner's arguments regarding the disallowance of only the peak amounts of purchases from PMI and restricted additions under section 40A(3). Instead, it decided to estimate the business income under section 145(2) and made lump sum additions for the relevant assessment years. The Commission also provided directions regarding the charging/waiver/reduction of interest and waived penalties, granting immunity from prosecution under section 245H.

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