1994 (3) TMI 136 - AT - Income Tax

Assessing Officer, Assessment Notice, Assessment Year, Reassessment Notice, Revised Return, Set On

Issues Involved:
1. Validity of notice under section 148.
2. Validity of assessment based on notice under section 142(1).
3. Additions made in toddy business for Hyderabad and other regions.
4. Suppression of sales in arrack business.
5. Disallowances of various expenses.
6. Addition of cash credit.
7. Disallowance of interest payment.

Detailed Analysis:

1. Validity of Notice under Section 148:
The assessee challenged the validity of the notice under section 148, arguing it was issued in the old form, allowing less than the statutory period for filing the return. The Tribunal agreed, citing several precedents, including the Karnataka High Court decision in Winter Care (P.) Ltd., which held that a notice allowing less than the statutory period is invalid. Consequently, any proceedings initiated based on such a notice are also invalid.

2. Validity of Assessment Based on Notice under Section 142(1):
Despite the invalidity of the notice under section 148, the Tribunal considered whether the assessment could be sustained based on the notice under section 142(1). The Tribunal noted that the return was filed within the extended period allowed under section 139(4) and treated it as valid. The Tribunal upheld the assessment proceeding as valid under section 142(1), irrespective of the invalidity of the notice under section 148.

3. Additions Made in Toddy Business:
- Hyderabad Region: The Assessing Officer (AO) added Rs. 32,72,492 based on a higher yield rate from the previous year. The CIT(A) corrected a calculation error, reducing the addition to Rs. 3,49,754. The Tribunal upheld this addition, noting the lack of evidence to support a lower yield rate during the monsoon months.
- Other Regions in Karnataka: The AO estimated suppressed sales based on excise permits and a Sales Tax Tribunal decision, leading to an addition of Rs. 93,73,568. The Tribunal found the methods used by the AO inconsistent and unreasonable. It deleted the entire addition, accepting the assessee's disclosed figures, which were higher than the previous year's accepted yield rate.

4. Suppression of Sales in Arrack Business:
The AO added Rs. 2,60,570 for alleged suppression of arrack sales. The Tribunal accepted the assessee's explanation of breakage and wastage, allowing a margin of 1.5% for breakage. It directed the AO to recalculate the shortfall based on this margin, replacing the original addition.

5. Disallowances of Various Expenses:
- Lorry Hire Expenses: The Tribunal deleted the disallowance of Rs. 5 lakhs, finding the overall percentage of expenses reasonable compared to the previous year.
- Tappers' Salary and Maintenance: The Tribunal deleted the disallowance of Rs. 9.50 lakhs, finding the percentage of expenses comparable to the previous year and the addition based on surmise.
- Tree Rent: The Tribunal confirmed the disallowance of Rs. 10,04,332, noting the increased percentage of expenses and the assessee's agreement at the assessment stage.
- Depot Charges: The Tribunal deleted the disallowance of Rs. 50,000, finding the percentage of expenses lower than the previous year.
- Shop Rent, Vendors' Salary, Staff Salary, and HSD Expenses: The Tribunal confirmed the disallowance of Rs. 22,71,792, noting the higher percentages claimed and the assessee's agreement at the assessment stage.

6. Addition of Cash Credit:
The AO added Rs. 2,04,610 as cash credit, doubting the sale of vats. The Tribunal accepted the assessee's explanation that the vats were sold locally after discontinuing the business in Gulbarga. It deleted the entire addition, finding the assessee's version plausible.

7. Disallowance of Interest Payment:
The AO disallowed Rs. 2,44,852 for interest-free loans to the assessee's wife and a sister concern. The CIT(A) restricted the disallowance to 2% for the loan to the sister concern. The Tribunal directed a disallowance of Rs. 62,884, agreeing with the assessee's admission.

Conclusion:
The appeal was partially allowed, with significant deletions of additions and disallowances, while some were confirmed based on reasonable grounds and the assessee's admissions.

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