2004 (6) TMI 268 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 4,38,284 under section 68 of the Income-tax Act, 1961.
2. Addition of Rs. 20,000 due to lack of details and vouchers.
3. Levy of interest under section 217 of the Act.

Detailed Analysis:

1. Addition of Rs. 4,38,284 under section 68:
The primary issue was whether the sum of Rs. 4,38,284, recorded as cash receipts in a note-book found during a survey, could be added to the assessee's income under section 68 of the Income-tax Act, 1961. The note-book, marked as "Arrival of Timber for 1984-85 Accounting year," contained entries from 10-12-1984 to 29-1-1985. The assessee argued that these entries were not unexplained cash credits but were related to business transactions recorded by an accountant who had since left the firm.

The Judicial Member held that section 68 was not applicable as the sums were not credited in any account in the regular books of account maintained by the assessee. He emphasized that the entries in the note-book were corroborated by the regular books of account, which were audited and accepted during the original assessment.

Conversely, the Accountant Member opined that the note-book was a rough cash book, and the entries therein related to the business transactions of the assessee. Since the note-book was found at the business premises, it was the assessee's responsibility to explain the cash receipts. The absence of a proper explanation led to the conclusion that the cash receipts were from undisclosed sources, justifying the addition under section 68.

The Third Member agreed with the Accountant Member, stating that the provisions of section 68 were applicable as the cash receipts recorded in the note-book were part of the business transactions, and the assessee failed to provide a satisfactory explanation for these entries.

2. Addition of Rs. 20,000 due to lack of details and vouchers:
The Assessing Officer made an ad hoc disallowance of Rs. 20,000, citing the absence of vouchers and details for certain expenses. The Judicial Member found this addition unjustified, as the expenses were recorded in the regular books of account, which were scrutinized and accepted during the original assessment.

The Accountant Member concurred with the Judicial Member, agreeing that the ad hoc disallowance was not warranted. The Tribunal ultimately deleted the addition of Rs. 20,000, emphasizing that the expenses were adequately recorded and supported by the regular books of account.

3. Levy of interest under section 217:
The Judicial Member held that interest under section 217 was not leviable, as the additions made by the Assessing Officer were vacated. The Accountant Member, however, considered the interest to be consequential, dependent on the final outcome of the assessment.

The Third Member agreed with the Accountant Member, concluding that the levy of interest under section 217 was consequential and should be recalculated based on the final order passed by the Tribunal.

Conclusion:
The Tribunal, after considering the opinions of the Judicial Member, Accountant Member, and Third Member, concluded as follows:
- The addition of Rs. 4,38,284 under section 68 was justified and sustained, as the cash receipts recorded in the note-book were unexplained and related to the business transactions of the assessee.
- The ad hoc disallowance of Rs. 20,000 was deleted, as the expenses were adequately recorded in the regular books of account.
- The levy of interest under section 217 was deemed consequential and was to be recalculated based on the final assessment order.

The assessee's appeal was partly allowed, with the addition of Rs. 4,38,284 being upheld and the addition of Rs. 20,000 being deleted. The interest under section 217 was to be recalculated accordingly.