1979 (2) TMI 127 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 20,000 related to low yield of rice.
2. Addition of Rs. 1,516 and Rs. 18,000 due to unexplained payments.

Analysis:

Issue 1: Addition of Rs. 20,000
The assessee firm was engaged in rice manufacturing and grain dealing. The Income Tax Officer (ITO) added Rs. 20,000 to the assessee's income due to a perceived low yield of rice. The assessee argued that the low yield was due to purchasing low-quality paddy at a cheaper rate and adverse weather conditions. The ITO compared the yield with other manufacturers in the area and adopted a higher yield percentage, resulting in the addition. The assessee appealed to the Appellate Authority Commissioner (AAC), who acknowledged the general fall in yield and reduced the addition to Rs. 20,000. The Income Tax Appellate Tribunal (ITAT) upheld the AAC's decision, considering the reasonable yield percentage and the average yield in similar cases. The addition of Rs. 20,000 was deemed justified and confirmed.

Issue 2: Addition of Rs. 1,516 and Rs. 18,000
The ITO added Rs. 1,516 and Rs. 18,000 to the assessee's income as unexplained payments made to other parties, suggesting undisclosed income usage. The AAC upheld these additions. In the appeal before the ITAT, the assessee argued that the provisions of section 69 of the Income Tax Act, 1961 should apply, limiting the consideration to amounts falling in the preceding financial year. The ITAT agreed with this interpretation and directed the ITO to reassess only the amounts falling in the financial year 1971-72. The ITAT also instructed the ITO to determine the correct peak of the various credits, including the Rs. 1,516 amount, and allow the assessee to establish if these credits originated from the rice business, potentially offsetting the Rs. 20,000 addition. The ITAT emphasized the need for a fresh hearing to verify the sources of the credits and set a threshold for taxation based on the correct peak amount. The appeal was partly allowed, subject to the reassessment based on the specified guidelines.

In conclusion, the ITAT decision addressed the issues of low yield addition and unexplained payments diligently, applying relevant legal provisions and directing a reassessment based on specific criteria for each issue.