1986 (11) TMI 72 - AT - Income Tax

Summary

Issues Involved:

1. Legality of the addition of Rs. 19,300 as income from undisclosed sources.
2. Merits of the addition of Rs. 19,300 as income from undisclosed sources.

Detailed Analysis:

1. Legality of the Addition of Rs. 19,300 as Income from Undisclosed Sources:

The assessee firm, engaged in the business of moulding and casting of iron, challenged the addition of Rs. 19,300 as income from undisclosed sources. Initially, the assessment was framed on 26th March 1977, determining the total income at Rs. 1,88,170 against the declared Rs. 1,51,720. The assessee appealed to the Commissioner (Appeals) contesting several disallowances, including bad debt and motor car expenses. The Commissioner (Appeals) set aside the assessment due to lack of proper investigation by the ITO and directed a fresh assessment.

In the fresh assessment dated 19th Feb. 1980, the ITO added Rs. 19,300, suspecting it as a bogus purchase from M/s. Vijay Traders. The assessee contended that the ITO exceeded his mandate by including this amount, relying on precedents like Surendra Overseas Ltd. vs. CIT and Katihar Jute Mills (P) Ltd. vs. CIT, which restrict the ITO from going beyond specific directions of the appellate authority. The Tribunal supported this stance, citing that an appellate authority cannot find a new source of income and tax it, thus the ITO's addition of Rs. 19,300 was invalid.

2. Merits of the Addition of Rs. 19,300 as Income from Undisclosed Sources:

On merits, the ITO scrutinized the books and found the purchase of Rs. 19,300 from M/s. Vijay Traders to be bogus, as no payment was made and the party's existence was dubious. The Commissioner (A) upheld this addition, noting the lack of evidence for the existence of M/s. Vijay Traders. The assessee provided documents like delivery slips and sales tax order to prove the genuineness of the purchase, arguing that similar additions were deleted in previous years by the Tribunal.

The Tribunal found the assessee's gross profit rate of 26.2% for the year to be the highest compared to other years, indicating genuine business activities. The sales tax order charged 3% tax for purchases from an unregistered dealer, not denying the purchases themselves. Given the consistent acceptance of the assessee's book results in other years and the deletion of similar additions in the past, the Tribunal concluded that the addition of Rs. 19,300 lacked justification.

Conclusion:

The Tribunal ruled in favor of the assessee, deleting the addition of Rs. 19,300 from the total income, both on legal grounds and merits, and allowed the appeal.