1995 (6) TMI 60 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 15,59,845 as income from undisclosed sources u/s 68.
2. Disallowance of Rs. 98,532 as penal interest.
3. Charging of interest u/s 139(8) and 217.
4. Compliance with CBDT Instruction No. 1659.
5. Procedural fairness and adequacy of opportunity to the assessee.

Summary:

1. Addition of Rs. 15,59,845 as income from undisclosed sources u/s 68:
The assessee, a Private Limited Company engaged in the business of automobile springs leaves, filed a return showing a loss which included current year and brought forward losses. The assessment was completed multiple times, with the final assessment determining an addition of Rs. 15,59,845 as income from undisclosed sources u/s 68. The CIT (Appeals) sustained Rs. 15,42,000 of this addition. The Tribunal observed that the Assessing Officer did not provide sufficient evidence to substantiate the claim that the amount represented undisclosed sales and noted the contradictory findings in successive assessments. The Tribunal emphasized that suspicion cannot replace proof and that the realisations from sundry debtors were accepted in subsequent years. The Tribunal concluded that the Assessing Officer was not justified in making the addition and deleted the sustained addition of Rs. 15,42,000.

2. Disallowance of Rs. 98,532 as penal interest:
The Assessing Officer disallowed Rs. 98,532 out of interest payments, terming it as penal in nature without providing specific reasons. The CIT (Appeals) upheld the disallowance if it was not a legitimate deduction. The Tribunal found both orders to be non-speaking and annulled the disallowance, stating that such orders deserve to be annulled as per the judgment of Gauhati High Court in Baidya Nath Sarma v. CWT.

3. Charging of interest u/s 139(8) and 217:
The charging of interest under sections 139(8) and 217 was deemed consequential by the Tribunal.

4. Compliance with CBDT Instruction No. 1659:
The Tribunal noted that the Assessing Officer accepted that the books of account were burnt in the riots of November 1984 but failed to apply CBDT Instruction No. 1659 dated 31-10-1985, which should have been applied given the circumstances. The Tribunal held that any order contrary to administrative instructions is null and void.

5. Procedural fairness and adequacy of opportunity to the assessee:
The Tribunal found that the Assessing Officer did not comply with the specific directions given by the CIT (Appeals) in the remand order, which amounted to judicial indiscipline. The Tribunal emphasized that the taxation authorities cannot change their stance without explanation, and benefit of doubt should be given to the assessee when the authorities themselves are unsure about the factual position.

Conclusion:
The Tribunal partly allowed the appeal, deleting the sustained addition of Rs. 15,42,000 and the disallowance of Rs. 98,532, while the charging of interest under sections 139(8) and 217 was deemed consequential. The Tribunal also highlighted the importance of compliance with CBDT instructions and procedural fairness.