2008 (1) TMI 354 - HC - Income Tax

Chitty business - entire books of accounts not produced by assessee - AO has accepted the profit and loss account and made certain additions based on a guess work - addition towards undistributed dividend on estimated basis addition towards foreman s commission on estimation basis addition made on assumption of facts, is not justified, hence they are set aside - remand the matter to the Assessing Officer for reconsideration - petitioner is directed to produce books of accounts

Summary

Issues:
1. Addition of estimated unpaid dividends from chitty business.
2. Estimation of foreman's commission on the date of auction.

Analysis:
1. The judgment addresses the issue of addition of estimated unpaid dividends from a chitty business. The court notes that the assessee did not produce entire books of accounts to substantiate the return and profit and loss account filed. The Assessing Officer accepted the profit and loss account but made additions based on guesswork. However, the addition towards undistributed dividend under Section 41(1) of the Income Tax Act was not approved by the first appellate authority and the Tribunal, leading to its deletion. The court concurs with this decision, stating that Section 41(1) has no application in this case. The court emphasizes that it was the assessee's responsibility to prove with evidence that the dividend, though not distributed along with subscriptions, was indeed distributed to the subscribers at the end of the chit. The court also highlights the importance of referring to the terms of the chitty contained in the variola to determine the entitlement of subscribers who default on payment. As the foreman's commission date was unclear, and the petitioner did not produce books of accounts, the court sets aside the previous orders and remands the matter to the Assessing Officer for reconsideration, directing the petitioner to produce books of accounts for a fresh assessment.

2. The second issue pertains to the estimation of foreman's commission on the date of auction. The court notes the lack of clarity on when the foreman's commission was credited, whether on the date of auction or the date of payment to the successful bidder. The Assessing Officer did not consider these aspects, and the petitioner did not provide books of accounts for verification. Consequently, the court overturns the Tribunal's decision and instructs a fresh assessment by the Assessing Officer. The court emphasizes the importance of providing an opportunity to the assessee to produce necessary accounts and details for the fresh assessment within three months from the date of the judgment. Additionally, if the books are unavailable, the Assessing Officer is directed to consider the assessee's practices in subsequent years to determine the assessment for the current year.

In conclusion, the judgment resolves the issues of estimated unpaid dividends from the chitty business and the estimation of foreman's commission by emphasizing the need for proper documentation and evidence to support the assessment process, ultimately leading to a remand for a fresh assessment based on accurate information and records.