1981 (7) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest paid to Delhi Development Authority.
2. Addition of cash credits amounting to Rs. 16,62,000.

Detailed Analysis:

1. Disallowance of Interest Paid to Delhi Development Authority:

Background: The assessee, Stretchlon (P.) Ltd., paid Rs. 11,623 as interest to the Delhi Development Authority for delayed payment of land purchased for business expansion. Both the Income Tax Officer (ITO) and the Commissioner of Income Tax (Appeals) disallowed this interest, citing that it pertained to land acquisition for a new unit.

Arguments:
- Assessee's Argument: The assessee argued that the business management, administration, and control were unified between the Bombay unit and the proposed Delhi unit. They relied on the cases of CIT v. Alembic Glass Industries Ltd. [1976] and Bansidhar (P.) Ltd. v. CIT [1981].
- Department's Argument: The department upheld the disallowance, relying on the Commissioner (Appeals)'s order and the Supreme Court decision in Challapalli Sugars Ltd. v. CIT [1975].

Judgment:
- Tribunal's Decision: The Tribunal found that the administration, management, and business organization of the assessee were the same for both units. Therefore, the interest paid for the delayed land payment was allowable. The Tribunal reversed the finding of the Commissioner (Appeals) and allowed the interest claim of Rs. 11,623.

2. Addition of Cash Credits Amounting to Rs. 16,62,000:

Background: The ITO added Rs. 16,62,000 to the assessee's income, citing unexplained cash credits from seven parties. The Commissioner (Appeals) deleted Rs. 12,24,634 but sustained Rs. 3,22,366 and Rs. 1,15,000.

Arguments:
- Assessee's Argument: The assessee argued that the cash credits were genuine advances for crimp yarn purchases. They provided delivery challans and receipts as evidence. They also highlighted that the sales to these parties were accepted by the revenue.
- Department's Argument: The department argued that the cash credits were not genuine, citing lack of agreements, non-traceability of parties, and no acknowledgment of receipts. They relied on various case laws to support their stance.

Judgment:
- Tribunal's Decision: The Tribunal found that the sales to six out of the seven parties were genuine and accepted by the revenue. They noted that the assessee provided sufficient evidence, such as delivery challans and receipts, and the non-traceability of parties alone could not justify the additions. The Tribunal deleted the addition of Rs. 3,22,366 but remitted the case of Mahavir Yarn Agency (Rs. 1,15,000) back to the ITO for re-examination.

Key Points:
- The Tribunal emphasized that findings should not be based on suspicions, conjectures, or surmises, as highlighted in the Supreme Court decisions of Omar Salay Mohamed Sait v. CIT [1959] and Lalchand Bhagat Ambica Ram v. CIT [1959].
- The Tribunal confirmed the deletion of Rs. 12,24,634 by the Commissioner (Appeals) and reversed the addition of Rs. 3,22,366. The matter concerning Rs. 1,15,000 was remitted back to the ITO.

Conclusion:
The assessee's appeal was partly allowed, with the interest claim of Rs. 11,623 being accepted and the addition of Rs. 3,22,366 being deleted. The cross-objection of the revenue was dismissed, and the case concerning Rs. 1,15,000 was remitted back to the ITO for further examination.