1997 (12) TMI 142 - AT - Income Tax

Summary

Issues Involved:
1. Approval of rejection of trading results and application of proviso to section 145(1).
2. Sustaining additions made by the Assessing Officer.
3. Disallowance of expenses and depreciation.
4. Estimation of business income for a specific period.
5. Charging of interest under sections 234A and 234B.
6. Deletion of addition based on document No. 19.

Issue-wise Detailed Analysis:

1. Approval of Rejection of Trading Results and Application of Proviso to Section 145(1):
The assessee challenged the CIT (Appeals) approval of the Assessing Officer's rejection of the trading results and the application of the proviso to section 145(1). The Assessing Officer had applied a G.P. rate of 10%, which was reduced by the CIT (Appeals) to 2.5%. The Tribunal referenced its decisions in similar cases and directed that the addition to the trading account be worked out by applying a G.P. rate of 1.9%. This disposed of ground Nos. 1 and 2 in the assessee's appeal and ground No. 1 in the Revenue's appeal.

2. Sustaining Additions Made by the Assessing Officer:
The assessee objected to the sustenance of an addition of Rs. 18,86,832 for unaccounted stock. The Tribunal noted the discrepancy in stock figures and allowed a 5% shortage for manufacturing processes, directing that the addition be restricted to 1.9% of the sale of the remaining unaccounted scrap. This decision was based on precedent cases and established principles.

3. Disallowance of Expenses and Depreciation:
The Tribunal upheld the partial disallowance of telephone expenses, vehicle maintenance expenses, and depreciation on vehicles, as no specific arguments were advanced by the assessee to contest these disallowances. The reasons given by the CIT (Appeals) were accepted, and these grounds were adjudicated against the assessee.

4. Estimation of Business Income for a Specific Period:
The assessee's income for the period from 1-4-1990 to 17-5-1990 was estimated by the Assessing Officer at Rs. 10,02,543, which was reduced by the CIT (Appeals) to Rs. 24,511. The Tribunal directed that the net profit be estimated at 1.5% of the sales for this period, aligning with its decisions in similar cases. If the profit computed this way was less than the declared profit, the declared profit should be adopted.

5. Charging of Interest under Sections 234A and 234B:
The Tribunal upheld the mandatory nature of charging interest under sections 234A and 234B, as established in previous cases. The interest should be charged after giving effect to the Tribunal's order.

6. Deletion of Addition Based on Document No. 19:
The CIT (Appeals) had deleted an addition of Rs. 4 lakhs made on the basis of document No. 19, citing lack of confrontation and details. The Tribunal agreed with this deletion, noting that the document was not available and the addition was made on surmises and conjectures. The Judicial Member's dissenting opinion suggested a remand for fresh adjudication, but the Third Member supported the Accountant Member's view, emphasizing the improper nature of the addition and the lack of material evidence.

Separate Judgments:
The Judicial Member disagreed with the Accountant Member on several points, advocating for the restoration of the Assessing Officer's additions and a remand for fresh adjudication on document No. 19. The Third Member, however, aligned with the Accountant Member, confirming the application of a 1.9% G.P. rate, the restricted addition for unaccounted stock, the estimation of net profit at 1.5%, and the deletion of the Rs. 4 lakh addition. The matter was referred back to the Division Bench for a majority opinion-based order.