1997 (11) TMI 124 - AT - Income Tax

Summary

Issues Involved:
1. Application of proviso to section 145(1).
2. Sustenance of an addition of Rs. 95,074 by applying a GP rate of 2.5%.
3. Addition of Rs. 84,985 on account of alleged unaccounted for stock.
4. Addition of Rs. 6,000 out of telephone expenses.
5. Estimation of income for the period 1-4-1990 to 17-5-1990.
6. Charging of interest under sections 234A and 234B.
7. Setting aside the issue of addition of Rs. 64,44,880 made on a protective basis.
8. Allowing relief of Rs. 9,33,552 for the period from 1-4-1990 to 14-5-1990.

Issue-wise Detailed Analysis:

1. Application of Proviso to Section 145(1):
The assessee argued that the departmental authorities were not justified in rejecting the books of account and resorting to the proviso to section 145(1). The comparative chart of sales and GP showed a consistent GP rate in preceding years. The assessee maintained complete details of purchases and sales, and the fall in GP rate was attributed to an increase in customs duty from 30% to 50%. The Tribunal accepted the application of the proviso to section 145(1) but applied a GP rate of 1.9% instead of 2.5% declared by the CIT(A).

2. Sustenance of an Addition of Rs. 95,074 by Applying a GP Rate of 2.5%:
The Assessing Officer applied a GP rate of 2.54%, resulting in an addition of Rs. 97,980. The CIT(A) reduced this to Rs. 95,077 by applying a GP rate of 2.5%. The Tribunal found that the increase in customs duty alone could not account for the steep fall in the GP rate and applied a GP rate of 1.9%, reducing the addition partly in favor of the assessee.

3. Addition of Rs. 84,985 on Account of Alleged Unaccounted for Stock:
The Assessing Officer calculated an unaccounted stock of 1090 kgs and made an addition of Rs. 84,985. The assessee argued that the stock calculation did not account for shortages due to dust and pilferage. The Tribunal directed that the addition should be made only on account of GP in relation to unaccounted sales after allowing a 1% shortage, applying a GP rate of 1.9%.

4. Addition of Rs. 6,000 Out of Telephone Expenses:
The assessee did not press for the disallowance of Rs. 6,000 out of telephone expenses. The Tribunal decided this issue against the assessee and in favor of the Revenue.

5. Estimation of Income for the Period 1-4-1990 to 17-5-1990:
The Assessing Officer estimated the income for this period at 1/7th of the total income, resulting in an addition of Rs. 9,63,184. The CIT(A) allowed relief of Rs. 9,33,552. The Tribunal, following its decision in the case of Gupta Metal Industries, directed that the net profit be estimated at 1.5% of the sales for the period 1-4-1990 to 17-5-1990, with the stipulation that if the profit so computed is less than the profit declared by the assessee, then the profit declared should be adopted.

6. Charging of Interest Under Sections 234A and 234B:
The assessee disputed the levy of interest under sections 234A and 234B. The Tribunal upheld the CIT(A)'s order, stating that the charging of interest under sections 234A to 234C was mandatory and compensatory in nature. However, the interest should be charged after giving appeal effect to this order.

7. Setting Aside the Issue of Addition of Rs. 64,44,880 Made on a Protective Basis:
The CIT(A) set aside the issue of the addition of Rs. 64,44,880 to the file of the Assessing Officer for fresh adjudication, as the seized papers were destroyed in a fire and were not available. The Tribunal upheld the CIT(A)'s order, finding no infirmity in the reasoning and conclusion.

8. Allowing Relief of Rs. 9,33,552 for the Period from 1-4-1990 to 14-5-1990:
The CIT(A) allowed relief of Rs. 9,33,552 to the assessee. The Tribunal, following its decision in the case of Gupta Metal Industries, directed that the net profit be estimated at 1.5% of the sales for the period 1-4-1990 to 17-5-1990, with the stipulation that if the profit so computed is less than the profit declared by the assessee, then the profit declared should be adopted.

Separate Judgments:

- The Judicial Member disagreed with the Accountant Member on the issues of additions of Rs. 95,074 and Rs. 84,985, and the estimation of profit for the period 1-4-1990 to 17-5-1990. The Judicial Member upheld the CIT(A)'s order in these matters.
- The Third Member, upon referral, agreed with the Accountant Member's reasoning and conclusions, thereby resolving the differences in favor of the assessee on these points.

Final Order:
The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal directed the Assessing Officer to recompute the additions and interest in accordance with the Tribunal's findings.