1990 (12) TMI 136 - AT - Income Tax

Issues Involved:

1. Timeliness of the appeal.
2. Addition of rent on property based on annual value estimation.
3. Disallowance of interest on borrowed sum invested in a firm.
4. Addition of income from undisclosed sources.
5. Charging of interest under sections 139(8) and 217(1)(a) of the IT Act.

Issue-wise Detailed Analysis:

1. Timeliness of the Appeal:

The Department raised a preliminary ground that the appeal is time-barred. However, it was found that the order of the CIT(A) was received by the assessee on 17th Aug., 1987, and the appeal was filed on 14th Sept., 1987. The appeal filed is within time as no contrary proof was provided by the Department to show service of the order earlier than 17th Aug., 1987.

2. Addition of Rent on Property Based on Annual Value Estimation:

The first grievance relates to the addition of rent on property let out by the assessee and self-occupied property on the basis of annual value adopted and estimated by the Revenue authorities. The assessee had shown income from property based on actual rent received. The ITO estimated the value at Rs.1,000 per month, considering the rent received from the tenant, who was the assessee's brother, to be very low. The CIT(A) upheld this estimation relying on decisions of the Calcutta and Madras High Courts.

The assessee argued that the annual value should be determined based on actual rent received, not on hypothetical calculations. The Supreme Court in Dr. Balbir Singh & Ors. vs. M.C.D. and Ors. held that where the property is let out and governed by the Rent Control Act, the standard rent should be taken for determining the bona fide annual value. The Municipal valuation, which considered relevant factors, supported the assessee's claim. The Tribunal concluded that the CIT(A) was wrong in determining the annual value at a hypothetical figure and directed the ITO to give relief to the assessee.

3. Disallowance of Interest on Borrowed Sum Invested in a Firm:

The next grievance related to the disallowance of interest on a borrowed sum invested in the firm M/s Sain Industries. The ITO disallowed the interest under s. 67(3) of the IT Act, stating that the firm had not commenced business, and the assessee did not derive any share income from the firm.

The assessee argued that the loan was for business purposes, and the interest paid should be allowable under ss. 67(3), 37(1), and 36(1)(iii) of the IT Act. The Tribunal found that the interest is allowable under s. 37 only if the business was set up in the relevant assessment years. The matter was remanded to the ITO to re-examine the claim and determine if the business was set up in the relevant years.

4. Addition of Income from Undisclosed Sources:

The assessee deposited Rs.5,000 in cash, with Rs.2,500 explained as withdrawal from M/s Bengali Sweet House. The remaining Rs.2,500 was partly explained by Rs.1,900 shown in the wealth-tax return. The ITO held Rs.600 as unexplained.

The Tribunal found that Rs.1,900 was properly explained, and only Rs.600 could be considered income from undisclosed sources. The order of the CIT(A) was modified to reflect this.

5. Charging of Interest under Sections 139(8) and 217(1)(a) of the IT Act:

The final grievance related to the charging of interest under ss. 139(8) and 217(1)(a) of the IT Act. This was deemed a consequential relief, requiring no further discussion.

Conclusion:

The appeal was partly allowed, with the Tribunal providing relief on the issues of property rent estimation and undisclosed income, while remanding the issue of interest on borrowed sums for further examination.

← Previous Next →