1991 (3) TMI 194 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 52,66,963 to the income disclosed by the assessee.
2. Addition of Rs. 3 lakhs representing the difference between the cost of construction of the building as estimated by the Valuation Officer and the cost recorded in the assessee's books.
3. Investment allowance.

Issue-wise Detailed Analysis:

1. Addition of Rs. 52,66,963 to the Income Disclosed by the Assessee:
The primary issue revolves around the addition of Rs. 52,66,963 to the assessee's income. The ITO added this amount, which was debited in the profit and loss account, for the purpose of computing the total income. The reasons for this addition were:
- The assessee did not state that the income declared under the amnesty scheme represented an understatement of stocks.
- There was no independent evidence to show that the amount was represented by stocks.
- It was against accounting principles to debit the amount offered for assessment in earlier years to the profit and loss account.

The CIT(A) sustained the addition, arguing that there was no material to show that the closing stock declared was inclusive of unaccounted stock from earlier years and that treating the income declared under the amnesty scheme as an outgoing in the profit and loss account for a subsequent year was unjustified.

The assessee contended that the additional income declared under the amnesty scheme was in the form of stock and that the necessary entries were passed in the accounts for the year ending 30th April, 1986. The assessee argued that the failure to state the form of the concealed income was not fatal to their case, as the amnesty scheme did not require such a declaration.

The Tribunal noted that the amnesty scheme did not require the form and manner of concealed income to be declared, unlike the Voluntary Disclosure Scheme of 1975. The Tribunal found that the assessee's explanation was supported by journal entries and an affidavit from a partner, which were not challenged by the Revenue. The Tribunal held that the Revenue did not provide any evidence that the escaped income was in any form other than stock. Consequently, the Tribunal deleted the addition of Rs. 52,66,963.

2. Addition of Rs. 3 Lakhs Representing the Difference in Cost of Construction:
The second issue concerns the addition of Rs. 3 lakhs, representing the difference between the cost of construction of a building as estimated by the Valuation Officer and the cost recorded in the assessee's books. The Valuation Officer admitted that he did not give the assessee an opportunity to be heard before completing his valuation and that he did not independently compute the cost of the building at the time of its transfer.

The Tribunal found that the Valuation Officer's estimate was not precise and that the cost of the pre-existing structure was not accurately determined. The Tribunal noted that the construction was spread over three years and concluded that the addition of Rs. 3 lakhs was excessive. The Tribunal reduced the addition to a token amount of Rs. 25,000.

3. Investment Allowance:
The last issue concerning the investment allowance was not pressed by the assessee before the Tribunal and was thus dismissed.

Conclusion:
The appeal was partly allowed. The Tribunal deleted the addition of Rs. 52,66,963 and reduced the addition for the difference in the cost of construction to Rs. 25,000. The issue of the investment allowance was dismissed.