1985 (1) TMI 119 - AT - Income Tax

Issues Involved:

1. Validity of the declaration dated 31st March 1968 regarding the blending of property into the common stock of HUF.
2. Assessment of income from property, hiring charges, and unexplained investments.
3. Timeliness and validity of the appeals filed by the Revenue.
4. Determination of sales and gross profit in the business of furniture.
5. Non-allowance of interest on certain loans.

Issue-wise Detailed Analysis:

1. Validity of the Declaration Dated 31st March 1968:

The primary issue revolved around the authenticity of a declaration dated 31st March 1968, which purportedly transferred property into the common stock of the HUF. The Income Tax Officer (ITO) examined the declaration and concluded it was anti-dated and had no evidentiary value. This conclusion was based on the report of the Senior Scientific Officer (Documents) cum Assistant Chemical Examiner to the Government of India and the Senior Treasury Officer, Bareilly. The ITO found that the document bore seals and stamps that were not available on the purported date of execution. The Appellate Assistant Commissioner (AAC) disagreed, citing the notary's admission and other circumstantial evidence, but the Tribunal ultimately sided with the ITO, finding the document invalid and not genuine.

2. Assessment of Income from Property, Hiring Charges, and Unexplained Investments:

For the assessment years 1970-71 to 1979-80, the ITO assessed incomes from property, hiring charges, and unexplained investments substantively in the hands of the individual assessee and protectively in the hands of the alleged HUF. The AAC, however, deleted the substantive assessment, supporting the assessee's claim that the property income belonged to the HUF. The Tribunal reversed the AAC's decision, citing the invalidity of the declaration and the Supreme Court's ruling in Surjit Lal Chhabda's case, which held that property owned by an individual could not be converted into HUF property if the family consisted only of the individual, his wife, and unmarried daughters.

3. Timeliness and Validity of the Appeals Filed by the Revenue:

The assessee contended that the Revenue's appeals were barred by time and not filed in the prescribed form. The Tribunal found that the delay of one day was satisfactorily explained by the ITO and condoned it. The omission of certain particulars in the appeal form was deemed not to invalidate the appeals. Therefore, the Tribunal saw no substance in the assessee's objections regarding the timeliness and form of the appeals.

4. Determination of Sales and Gross Profit in the Business of Furniture:

The ITO had noticed defects in the assessee's accounts and applied the provisions of Section 145, estimating sales and gross profit. The AAC granted some reduction in sales estimates but upheld the profit rate determined by the ITO. The Tribunal agreed with the AAC's application of Section 145 and found the sales estimates reasonable, rejecting the Revenue's and the assessee's appeals on this issue.

5. Non-allowance of Interest on Certain Loans:

The assessee's appeal regarding the non-allowance of interest on certain loans was rejected. The Tribunal found no substance in this claim, as the profit from the furniture business had been determined by applying a reasonable net rate of profit.

Conclusion:

The appeals filed by the Revenue were allowed in part, while the cross objections and appeals filed by the assessee were rejected. The Tribunal upheld the ITO's findings on the invalidity of the declaration and the substantive assessment of income in the hands of the individual assessee. The Tribunal also agreed with the AAC's application of Section 145 and the estimation of sales and gross profit.

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