2007 (11) TMI 639 - HC - Income Tax

Summary

Issues involved:
The issues involved in this case are:
1. Addition of undisclosed income u/s 41(1) of the Income Tax Act.
2. Treatment of written off amount by the Karnataka Bank as income.
3. Addition of unproved loan creditors.

Issue 1: Addition of undisclosed income u/s 41(1) of the Income Tax Act:
The assessing officer added an amount of Rs. 22 lakhs as undisclosed income, contending that the firm had actually received Rs. 82 lakhs for the sale of the plywood factory, despite the sale deed showing Rs. 60 lakhs. The appellant argued that the Tribunal had already determined the sale consideration to be Rs. 60 lakhs in the case of the factory purchaser, and the authorities should not take a different view. The Court agreed with the appellant, stating that the revenue cannot change its stance when the purchaser's assessment has been finalized.

Issue 2: Treatment of written off amount by the Karnataka Bank as income:
The assessing officer included a sum of Rs. 4,40,653/- as income under Sec 41(1) of the Income Tax Act, which was written off by the Karnataka Bank. The appellant contended that this amount should have been disclosed in the subsequent assessment year, not the current one. The Court found in favor of the appellant, stating that the assessing officer did not properly consider the timing of disclosure. The appellant was granted liberty to show this amount in the subsequent years.

Issue 3: Addition of unproved loan creditors:
An amount of Rs. 13,03,008/- was added as unproved loan creditors by the assessing officer. The appellant argued that these were carried forward from previous years and should not be treated as unproved creditors. However, the Court held that the assessing officer was justified in treating this amount as unproved credits, as the appellant failed to prove their existence despite being given an opportunity. Therefore, the Court confirmed the addition of Rs. 13,03,008/- as unproved credits.

In conclusion, the Court allowed the appeal in part, directing the Assessing officer to delete the additions of Rs. 22 lakhs and Rs. 4,40,653/-, with liberty for the Assessing officer to examine the latter in subsequent assessment years. The addition of Rs. 13,03,008/- as unproved credits was confirmed.