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Issues involved: The judgment involves the assessment of a firm running a hotel in Coimbatore for the years 1965-66 and 1966-67, focusing on the disclosure of gross profit and cash credits.
Assessment Year 1965-66: The Income Tax Officer (ITO) estimated the gross profit at 23% instead of the disclosed 5.5%, adding Rs. 69,311 as concealed profits. Additionally, a cash credit addition of Rs. 85,000 was made, which the assessee explained as genuine loans. The Appellate Assistant Commissioner (AAC) accepted the gross profit addition but merged it with the cash credit addition. The Tribunal upheld this decision, stating that concealed profits could be considered as bogus cash credits. Assessment Year 1966-67: Similar to the previous year, a gross profit addition of Rs. 58,127 and a cash credit addition of Rs. 57,042 were made. The AAC merged the additions, which was upheld by the Tribunal. The Revenue appealed, arguing that the additions should be treated separately, citing previous court decisions. Legal Analysis: The Revenue contended that the gross profit and cash credit additions should not be telescoped, as done by the AAC and Tribunal. They argued that separate sources of income must be established for each addition. However, the court referenced previous judgments to support the telescoping of additions when suppressed profits are linked to cash credits. The Supreme Court's decisions in various cases emphasized the assessee's right to explain that suppressed profits were reflected in cash credits, justifying the merging of additions. Conclusion: The court upheld the Tribunal's decision to merge the gross profit and cash credit additions, stating that the assessee can claim the suppressed profits were reflected in the cash credits. Citing relevant case law, the court found the Revenue's arguments unconvincing and ruled in favor of the assessee. The questions of law were answered in the affirmative against the Revenue, with costs awarded to the assessee.
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