2006 (2) TMI 217 - AT - Income Tax

Summary

Issues Involved:
1. Addition of lease rent for assessment years 1995-96 and 1996-97.
2. Deletion of addition on account of unaccounted sale of TV sets and other items for assessment years 1995-96 and 1996-97.
3. Lump sum addition to trading results for assessment year 1995-96.

Issue-wise Detailed Analysis:

1. Addition of Lease Rent for Assessment Years 1995-96 and 1996-97:

The main dispute relates to the addition of Rs. 25,28,784 and Rs. 32,73,184 made by the Assessing Officer for the assessment years 1995-96 and 1996-97 respectively on account of lease rent. The assessee had entered into lease agreements with two companies, M/s. Mittal Tubes Pvt. Ltd. and M/s. Rinasu Steel Pvt. Ltd., for leasing machinery. The assessee reversed the lease rent receivable for these years due to doubtful recovery and filed a suit in Delhi High Court against M/s. Mittal Tubes Pvt. Ltd. The Assessing Officer disallowed the reversal, stating that the assessee was maintaining accounts on a mercantile basis and the lease rentals had already accrued. The CIT (Appeals) sided with the assessee, citing the Supreme Court judgment in Godhra Electricity Co. Ltd. v. CIT, which stated that hypothetical income cannot be added if it does not materialize. The Tribunal, however, found that the real income principle applies only in exceptional circumstances and upheld the addition made by the Assessing Officer, stating that the lease rent had indeed accrued and the assessee could not unilaterally reverse it.

2. Deletion of Addition on Account of Unaccounted Sale of TV Sets and Other Items for Assessment Years 1995-96 and 1996-97:

The Assessing Officer added Rs. 1,60,000 and Rs. 1,04,983 for the assessment years 1995-96 and 1996-97 respectively, suspecting unaccounted sales of TV sets and other items. The assessee explained that these items were damaged and written off. The CIT (Appeals) accepted the explanation and deleted the additions. The Tribunal noted that the explanations were detailed and were not furnished before the Assessing Officer. It restored the issue to the Assessing Officer for fresh decision after allowing the assessee a reasonable opportunity to be heard.

3. Lump Sum Addition to Trading Results for Assessment Year 1995-96:

The Assessing Officer made a lump sum addition of Rs. 10 lakhs to the trading results due to discrepancies in records and non-cooperation from the assessee. The CIT (Appeals) deleted the addition, noting the decline in business and the lockout of the factory. The Tribunal upheld the CIT (Appeals) decision, stating that the assessee had given a cogent explanation for the decline in the gross profit rate and that an addition to the trading results cannot be made if the results are properly explained.

Conclusion:

For statistical purposes, the revenue's appeal for assessment year 1995-96 is treated as partly allowed and allowed for assessment year 1996-97.