1998 (2) TMI 146 - AT - Income Tax

Summary

Issues Involved:
1. Additions made by the AO on account of provisions for payments of sales-tax.
2. Treatment of undisclosed income.
3. Carry forward of unabsorbed depreciation.
4. Addition on account of notional interest charged on an advance.

Issue 1: Additions made by the AO on account of provisions for payments of sales-tax

The first effective ground of ITA Nos. 608 & 609/Asr/1990 relates to additions made by the AO on account of provisions for payments of sales-tax in both the asst. yrs. 1986-87 and 1987-88 by the assessee, which were deleted by the CIT(A). The AO treated the liability as contingent based on the auditor's report and past assessment orders. The CIT(A), however, concluded that the liability was statutory and accrued the moment sales were effected, citing various case laws. The Tribunal noted that the assessee failed to provide the agreement with selling agents or details of mutually settled terms, making the liability appear contingent. Consequently, the Tribunal reversed the CIT(A)'s order and upheld the AO's disallowance.

Issue 2: Treatment of undisclosed income

Grounds Nos. 5 and 6 of ITA No. 609 (Asr)/1990 and all the grounds of ITA No. 610/Asr/1990, 408/Asr/1991, and ground Nos. 1 and 2 in ITA No. 27/Asr/1993 relate to undisclosed income. During the asst. yrs. 1987-88, the AO noted excessive agricultural income and made reductions, which were partially reversed by the CIT(A). The Tribunal found the AO's reasoning convincing and restored the AO's additions, reversing the CIT(A)'s relief.

Issue 3: Carry forward of unabsorbed depreciation

In ITA No. 27/Asr/1993 for the asst. yr. 1991-92, the CIT(A) allowed the assessee to carry forward unabsorbed depreciation. The Revenue appealed, citing the Supreme Court decision in Garden Silk Weaving Factory vs. CIT, which mandates that unabsorbed depreciation should be apportioned to partners if it cannot be adjusted against the firm's income. The Tribunal found the CIT(A)'s order erroneous and upheld the AO's decision, aligning with the Supreme Court ruling.

Issue 4: Addition on account of notional interest charged on an advance

The last ground concerns an addition of Rs. 20,000 made by the AO for notional interest on an advance of Rs. 2 lakhs to Kulwant Singh. The CIT(A) deleted this addition, accepting the assessee's explanation that the advance was for a failed purchase deal and thus no interest was chargeable. The Tribunal agreed with the CIT(A) and found no basis for the AO's addition, thereby dismissing the ground.

Conclusion:

The appeals of the Revenue were partly allowed. The Tribunal upheld the AO's disallowance of sales-tax provisions and additions for undisclosed income while reversing the CIT(A)'s relief. The Tribunal also confirmed the AO's treatment of unabsorbed depreciation in line with the Supreme Court's decision but upheld the CIT(A)'s deletion of notional interest addition.