1991 (11) TMI 106 - AT - Income Tax

Summary

Issues Involved:

1. Deletion of addition of Rs. 70,205 to the Trading Account.
2. Deletion of addition of Rs. 9,08,787 which were not accounted for in the books of accounts.
3. Deletion of addition of Rs. 48,986 on account of alleged expenses.

Issue-wise Detailed Analysis:

1. Deletion of addition of Rs. 70,205 to the Trading Account:

The ITO enhanced the gross profit by 1% from 10.7% to 11.7%, resulting in an addition of Rs. 70,205 to the trading account. The ITO questioned the authenticity of the accounts due to the lack of addresses of lorry owners and drivers in the challans and the fact that payments were made in cash. Despite the assessee's explanations, the ITO made the addition based on the potential for manipulation. The CIT(A) deleted this addition, noting that the ITO could not provide any instance of actual over-payment or false payment. The Tribunal agreed with the CIT(A), stating that the ITO did not prove the payments were bogus or inflated and that the gross profit declared was higher than the previous year. Therefore, the deletion of the addition of Rs. 70,205 was upheld.

2. Deletion of addition of Rs. 9,08,787 which were not accounted for in the books of accounts:

The assessee raised bills amounting to Rs. 9,08,787 due to additional expenses incurred for transportation work for BCCL, which were not entered into the accounts. The ITO added this amount to the returned income, arguing that the income had accrued since the assessee maintained accounts on a mercantile system. The CIT(A) deleted the addition, relying on Supreme Court decisions, stating that the amount neither accrued nor was received by the assessee during the relevant year. The Tribunal agreed, noting that the income must be real and not hypothetical. Since the bills were not accepted by BCCL and the income did not materialize, the addition was not justified. The Tribunal directed that the balance amount of Rs. 1,47,990, which was passed by the High Power Committee, should be assessed in the year of receipt, providing relief of Rs. 7,60,797 to the assessee.

3. Deletion of addition of Rs. 48,986 on account of alleged expenses:

The ITO disallowed Rs. 48,986 as superfluous and fictitious expenses, claiming they were intended to minimize profits. The CIT(A) deleted this addition after reviewing the details and finding no evidence to justify the ITO's claim. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were short payments from different parties, deducted by Government Departments, and received by account payee cheques. Therefore, the addition of Rs. 48,986 was properly deleted.

Conclusion:

In conclusion, the Tribunal upheld the CIT(A)'s deletion of the additions of Rs. 70,205 and Rs. 48,986, and provided partial relief regarding the addition of Rs. 9,08,787, with directions to assess the balance amount of Rs. 1,47,990 in the year of receipt. The Revenue's appeal was partly allowed subject to these directions.