1986 (1) TMI 132 - AT - Income Tax

Summary

Issues Involved:

1. Shortage of Cash During Survey
2. Disallowance of Interest under Section 40(b)
3. Determination of Annual Letting Value (ALV) of Properties

Issue-wise Detailed Analysis:

1. Shortage of Cash During Survey:

The assessee, involved in property, dividend, money-lending, and banking business, was subjected to a survey on 15th April 1977 under Section 133A of the IT Act, 1961. It was discovered that there was a shortage of cash amounting to Rs. 25,54,880.89. The Income Tax Officer (ITO) examined the cashier, who stated that the money had been taken by three partners, primarily by Dr. Gaur Hari Singhania. Dr. Singhania confirmed receiving money but could not specify the purpose. Another survey in January 1978 and further examinations revealed that Dr. Singhania claimed to have returned the money to the firm.

The ITO concluded that the firm did not have the cash on the survey date and suggested that the money was not given to Dr. Singhania. The ITO added Rs. 22,23,647 to the assessee's income, suspecting it was from undisclosed sources. The CIT(A) deleted this addition, holding that the Department had not justified it. The Tribunal upheld the CIT(A)'s decision, emphasizing that the firm had accounted for the cash and explained its source satisfactorily. The Tribunal also noted that the Department did not conduct a survey on 16th April 1977 to verify the return of the money.

2. Disallowance of Interest under Section 40(b):

The ITO disallowed Rs. 2,63,647 as a loss in interest, arguing that the assessee was borrowing at higher rates and lending at lower rates, which was not a commercial loss. However, the CIT(A) examined the interest account and, finding the calculations correct, deleted the disallowance. The Tribunal found no merit in the Department's contention and upheld the CIT(A)'s decision, noting that the disallowance was amply compensated by the withdrawal of Rs. 2,68,814 allowed by the ITO.

3. Determination of Annual Letting Value (ALV) of Properties:

The ITO determined the ALV of J.K. Kothi based on findings from the assessment year 1972-73. The CIT(A), following the Tribunal's earlier decision, held that the ALV should be Rs. 8,075, equal to the rent realized. The Tribunal, noting a change in law, directed that the ALV be determined at Rs. 11,250, the standard rent, instead of Rs. 8,075.

For other properties, the CIT(A) upheld the ALV of Kamala Tower and Kamala Retreat but directed a reconsideration of Ganga Kutir's ALV. The Tribunal agreed with the CIT(A)'s determination of Ganga Kutir's ALV at Rs. 20,000, following the ADM's order.

Separate Judgments:

The Tribunal delivered a comprehensive judgment addressing all issues raised by both the Department and the assessee, ensuring that each contention was analyzed and adjudicated based on the facts and applicable law. The appeals were partly allowed, with specific directions for reassessment and reconsideration of certain aspects.