1994 (3) TMI 135 - AT - Income Tax

Summary

Issues involved:
1. Validity of notices issued under section 148 for assessment years 1985-86 and 1986-87.
2. Additions on account of unexplained investment in girvi accounts.
3. Additions on account of extra interest income from girvi accounts.
4. Levy of interest under sections 139(8) and 217.

Issue-wise Detailed Analysis:

1. Validity of Notices Issued Under Section 148 for Assessment Years 1985-86 and 1986-87:

The assessee challenged the validity of the notices issued under section 148, citing a Karnataka High Court decision in Winter Care (P.) Ltd., which held that assessment proceedings initiated under section 147 were invalid if the notice under section 148 provided only a 30-day period for filing the return. The Tribunal noted that the notices in the present case also allowed only 30 days, rendering them invalid under the amended provisions of section 148 effective from 1-4-1989. However, the Tribunal concluded that since the assessee had already filed returns before the issuance of these notices, he effectively waived his right to the notice period, making the proceedings valid.

2. Additions on Account of Unexplained Investment in Girvi Accounts:

The Assessing Officer added Rs. 30,000 and Rs. 35,130 for assessment years 1985-86 and 1986-87, respectively, based on seized documents indicating investments not reflected in the books. The Tribunal found that these additions were based on surmises without concrete evidence linking the documents to the assessee's business. Therefore, the Tribunal ordered the deletion of these additions, reversing the lower authorities' decisions.

3. Additions on Account of Extra Interest Income from Girvi Accounts:

The Assessing Officer added extra interest income based on the assessee's admission of charging 3% interest per month while accounting for only 1.5% in the books. The Tribunal upheld this addition, noting the clear admission by the assessee and the lack of evidence to show lower interest rates in specific cases. However, the Tribunal also upheld the relief granted by the DCIT(A) for the extra income already declared by the assessee in the revised returns.

4. Levy of Interest Under Sections 139(8) and 217:

For assessment year 1985-86, the Tribunal directed the deletion of interest under section 217(1)(b), citing it as a re-assessment under section 147, aligning with the Karnataka High Court's decision in Charles D'Souza v. CIT. For assessment year 1986-87, the Tribunal upheld the levy of interest, treating it as a regular assessment due to the invalidity of the original return. For assessment year 1987-88, the Tribunal remitted the issue back to the Assessing Officer for factual verification, referencing the Bombay High Court decision in Patel Aluminium (P.) Ltd. If the assessee's prior assessment was at non-taxable income, no interest would be levied; otherwise, the levy would stand.

Conclusion:

The Tribunal dismissed the departmental appeals for all three years and partially allowed the assessee's appeals, ordering deletions of unexplained investment additions and confirming the extra interest income additions with specified reliefs. The levy of interest was addressed with specific directions for each assessment year based on the nature of the assessments and factual verification requirements.