1983 (2) TMI 59 - AT - Income Tax

Summary

Issues:
1. Explanation of unexplained capital of the assessee firm as on 25th October, 1978.
2. Determination of net profit rate on sales outside the account books.

Analysis:

Issue 1: Explanation of unexplained capital of the assessee firm as on 25th October, 1978:
The case involves an appeal by the assessee against the CIT (A)-I, Kanpur's order related to the assessment year 1979-80. The dispute arises from a search conducted on the business premises and partners' residence, leading to the discovery of unexplained capital in the firm. The CIT (A) found discrepancies in the explanation of the source of capital and directed a fresh assessment without restrictions. The assessee argued that the CIT (A) exceeded his authority in setting aside the assessment and should have made a decision based on available facts. The Tribunal disagreed with the CIT (A)'s decision, stating that the assessment should have been upheld without remanding it back to the ITO. The Tribunal directed the CIT (A) to decide on the unexplained capital issue based on existing evidence and after hearing both parties.

Issue 2: Determination of net profit rate on sales outside the account books:
The second issue concerns the net profit rate on sales outside the account books. The ITO estimated a 6% net profit rate, higher than the 3% disclosed by the assessee. The Tribunal upheld the ITO's estimate, stating that the 6% rate was consistent with earlier years' profit rates on sales entered in the account books. The Tribunal disagreed with the CIT (A)'s decision to set aside the assessment on this issue and upheld the ITO's estimate of income from sales of hosiery goods outside the account books.

In conclusion, the appeal was partly allowed, with the Tribunal directing the CIT (A) to decide on the unexplained capital issue and upholding the ITO's estimate of income from sales outside the account books.