1990 (10) TMI 110 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 29,80,220 under Section 69A of the Income Tax Act, 1961.
2. Interest disallowance of Rs. 12,000.
3. Charge of interest under Sections 139(8) and 215 of the Income Tax Act, 1961.

Detailed Analysis:

1. Addition of Rs. 29,80,220 under Section 69A of the Income Tax Act, 1961

The deceased assessee, earning income from his proprietary concern, Shreeji Minerals and Chemicals, share income from M/s Hindustan Transport Co., and interest, filed a return of income on 13th Nov., 1987 at Rs. 53,435. During assessment, the ITO found the assessee involved in a seizure of contraband goods valued at Rs. 1,53,65,006 by customs authorities, who also imposed a personal penalty of Rs. 3 lakhs on the deceased assessee. The ITO added Rs. 29,80,220 to the assessee's income, attributing ownership of the contraband goods in proportion to the penalty levied.

The assessee contended that he was not the owner of the contraband goods, had been acquitted of charges under Section 135(1)(A) & (b) of the Customs Act, 1962, and had even received a reward for informing customs authorities about the illegal transportation. He also argued that if ownership was attributed, it should be allowed as a business loss per CIT vs. S.C. Kothari (1971) 82 ITR 794 (SC), or assessed collectively with other involved persons as an AOP.

The Tribunal found no evidence attributing ownership of the contraband goods to the deceased assessee. Statements from Bhanubhai, Driver, and Mangal, Conductor, were inconsistent and retracted, and the acquittal by the Judicial Magistrate further supported the absence of possession. The Tribunal concluded that mere involvement in transportation did not equate to ownership for the purposes of Section 69A. The addition was thus directed to be deleted.

2. Interest Disallowance of Rs. 12,000

The ITO disallowed Rs. 12,000 of interest claimed by the assessee, noting that the assessee had given an interest-free loan of Rs. 1 lakh to his HUF while paying Rs. 46,514 as interest to depositors. The CIT(A) upheld this disallowance.

The Tribunal agreed with the ITO and CIT(A), stating that the assessee had diverted interest-bearing deposits to interest-free loans, justifying the disallowance. Thus, the disallowance of Rs. 12,000 was left undisturbed.

3. Charge of Interest under Sections 139(8) and 215

The charge of interest under Section 139(8) was deemed automatic if the conditions for such a charge existed. The Tribunal advised the assessee to seek waiver from the ITO if eligible.

For Section 215, the interest charge was to be recomputed in light of the relief granted in this order.

Conclusion

The appeal was partly allowed, with the deletion of the addition under Section 69A, upholding the interest disallowance, and directing a recomputation of interest under Section 215.