1983 (1) TMI 100 - AT - Income Tax

Issues Involved:
1. Addition of Rs. 10,000 under Section 40A(3) of the Income Tax Act.
2. Addition of Rs. 14,400 under Section 40A(3) of the Income Tax Act.
3. Addition of Rs. 25,000 as unexplained income.
4. Rejection of book results and estimation of sales and gross profit.
5. Disallowance of Rs. 3,914 under Section 40(b) of the Income Tax Act.

Detailed Analysis:

1. Addition of Rs. 10,000 under Section 40A(3):
The first issue concerns the addition of Rs. 10,000 to the assessee's total income under Section 40A(3) of the Income Tax Act. The assessee made a cash payment of Rs. 10,000 to Plastic Products Ltd. as an advance against the supply of goods. The Income Tax Officer (ITO) added this amount to the assessee's income, as the payment exceeded the permissible limit for cash transactions. The assessee claimed exemption under Rule 6DD(j) of the Income Tax Rules, 1962, but failed to produce a certificate or letter from the seller confirming the necessity of cash payment. The ITO and the Commissioner of Income Tax (Appeals) [CIT(A)] both confirmed the addition. The Tribunal upheld this decision, stating that the assessee did not provide sufficient evidence to justify the cash payment under exceptional or unavoidable circumstances as required by Rule 6DD(j).

2. Addition of Rs. 14,400 under Section 40A(3):
The second issue involves a cash payment of Rs. 14,400 to M/s India Plastic Corporation. The assessee claimed that the seller insisted on cash payment and provided a letter dated 7th December 1979 from Smt. Sushil Kaur, a partner of the seller firm, supporting this claim. However, the ITO examined Shri Jasbir Singh, Smt. Sushil Kaur's husband, who stated that the payment could have been made by crossed cheque or bank draft. Despite this, the Tribunal accepted the initial statement from Smt. Sushil Kaur as the correct one and allowed the exemption under Rule 6DD(j), thereby deleting the addition of Rs. 14,400.

3. Addition of Rs. 25,000 as Unexplained Income:
The third issue pertains to the addition of Rs. 25,000 as unexplained income. The assessee showed a credit of Rs. 25,000 in its cash book on 26th November 1975, claiming it was withdrawn from the State Bank of India. However, the ITO found that the cheque was actually cashed on 29th November 1975. The assessee then claimed the amount was a loan from its sister concern, M/s Goverdhan Das & Sons. The ITO, after examining the partners and the cash book of the sister concern, concluded that the entry was falsified. The Tribunal agreed with the ITO and CIT(A) that the amount represented the assessee's own income from undisclosed sources and confirmed the addition.

4. Rejection of Book Results and Estimation of Sales and Gross Profit:
The fourth issue involves the rejection of the assessee's book results under Section 145(2) of the Income Tax Act. The ITO observed discrepancies in the records of raw material consumption and production and noted a significant drop in the gross profit rate. The ITO estimated sales at Rs. 4,74,491 and applied a gross profit rate of 19%, resulting in an addition of Rs. 86,576. The CIT(A) reduced the gross profit rate to 15% and the estimated turnover to Rs. 4 lakhs, reducing the addition to Rs. 56,206. The Tribunal, after considering the fall in purchase and sale prices, found that the loss was due to a decrease in the price of granules and accepted the declared profit, deleting the addition of Rs. 56,206.

5. Disallowance of Rs. 3,914 under Section 40(b):
The final issue concerns the disallowance of Rs. 3,914 paid as interest to the respective Hindu Undivided Families (HUFs) of two partners, under Section 40(b) of the Income Tax Act. The CIT(A) confirmed the disallowance based on a decision of the Allahabad High Court. However, the Tribunal referred to a later decision of the Allahabad High Court in the case of Ram Lal & Sons vs. CIT, which allowed such payments. Consequently, the Tribunal deleted the addition of Rs. 3,914.

Conclusion:
The appeal was partly allowed, with the Tribunal confirming some additions while deleting others based on the evidence and applicable legal provisions.

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