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2007 (7) TMI 232 - HC - Income TaxAdditions on account of unexplained investment - Assessing Officer as well as the CIT (A) have failed to appreciate the contention advanced by the assessee that the entries made in the diary were imaginary - Tribunal deleted the additions on ground that additions are based only on a diary and such entries are imaginary and not reliable order of the Tribunal is based on pure findings of fact, so it cannot be interfered with
Issues:
1. Determination of the assessee's income for the assessment year 1982-83. 2. Validity of making an addition of Rs. 5,65,300 based on a pocket diary requisitioned under Section 132A of the Income Tax Act. 3. Disagreement between the Assessing Officer, CIT (A), and the Tribunal regarding the assessment of the firm's income. 4. Reliability of entries in the impounded diary as a basis for making additions to the income. Issue 1: Determination of the assessee's income for the assessment year 1982-83 The case involved a firm engaged in the business of auto spare parts with headquarters in Jalandhar and a branch office in Kapurthala. The income declaration discrepancies led to multiple assessments and appeals. The Assessing Officer initially framed a best judgment assessment at Rs. 4,97,180/-. The CIT (A) set aside this order, leading to a fresh assessment under Section 143(3) resulting in an addition of Rs. 5,65,300. The Tribunal, in its order, questioned the validity of this addition and eventually added only Rs. 55,000 to the declared income of Rs. 14,240. Issue 2: Validity of making an addition of Rs. 5,65,300 based on a pocket diary requisitioned under Section 132A of the Income Tax Act The controversy arose from the revenue's reliance on a pocket diary impounded during an inspection by the Excise and Taxation Department, which was later requisitioned by the Income-tax Department under Section 132A. The Assessing Officer invoked Section 145(2) of the Act, rejecting the assessee's version entirely. The CIT (A) upheld this assessment and addition. However, the Tribunal disagreed, stating that the diary entries, including expenses like marriage costs and liquor vend activities, were imaginary and not reliable for making additions to the firm's income. Issue 3: Disagreement between the Assessing Officer, CIT (A), and the Tribunal regarding the assessment of the firm's income The Assessing Officer and the CIT (A) supported the addition of Rs. 5,65,300 based on the impounded diary entries, while the Tribunal criticized their approach. The Tribunal highlighted discrepancies in the diary entries, such as non-existent shaguns, marriage expenses for a non-existent person, and unconnected activities like liquor vend operations. The Tribunal concluded that the entries were fictional and not grounds for making substantial additions to the firm's income. Issue 4: Reliability of entries in the impounded diary as a basis for making additions to the income The Tribunal categorically rejected the addition of Rs. 5,65,300 based on the impounded diary entries, emphasizing that no substantial additions were justified. The revenue's argument that the diary, handwritten by one of the partners, should be considered valid for assessment was dismissed. The Tribunal found the entries to be fictitious and not credible for determining the firm's income. Consequently, the Tribunal only added Rs. 55,000 to the declared income, emphasizing that no substantial additions could be justified based on the impounded diary. This detailed analysis of the judgment highlights the key issues surrounding the determination of the firm's income, the validity of additions based on impounded diary entries, and the disagreements between the Assessing Officer, CIT (A), and the Tribunal regarding the assessment process.
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