1993 (11) TMI 100 - AT - Income Tax

Issues Involved:
1. Initiation of reassessment proceedings under section 147/148 of the IT Act.
2. Addition of Rs. 8,06,900 and Rs. 75,649 based on loose papers.
3. Disallowance of stock loss of Rs. 1,79,480.
4. Disallowance of travelling expenses Rs. 2,000 and telephone expenses Rs. 1,500.
5. Addition of Rs. 70,788 as interest income.
6. Addition of Rs. 11,300 as income from undisclosed sources on account of investments in Colour TV and VCR.

Detailed Analysis:

1. Initiation of Reassessment Proceedings Under Section 147/148:
The first ground of appeal challenges the initiation of reassessment proceedings under section 147/148. The original assessment was framed under section 143(1) on 31-3-1986, accepting the returned loss of Rs. 92. The reassessment was initiated based on a loose paper (No. 97) found during a search on 29-8-1986, which contained entries aggregating to Rs. 8,06,900. The assessee contended that the paper did not belong to him, supported by an affidavit. The Tribunal observed that the paper did not show any connection with the assessee or his business, and the presumption under section 132(4A) is limited to proceedings under section 132. The Tribunal concluded that the reopening of the assessment was without authority of law and quashed the notice issued under section 148 and the reassessment order.

2. Addition of Rs. 8,06,900 and Rs. 75,649 Based on Loose Papers:
The Tribunal held that the loose paper No. 97 had no probative value, and any addition based on it deserved to be deleted. Similarly, for the addition of Rs. 75,649 based on loose papers Nos. 95 and 96, the Tribunal noted that the assessee had denied any connection with these papers through a sworn affidavit. The presumption under section 132(4A) was not applicable for regular assessment under section 143(3). Consequently, the Tribunal deleted both additions.

3. Disallowance of Stock Loss of Rs. 1,79,480:
The assessee claimed a loss of Rs. 1,79,480 for goods imported but surrendered at port. The Assessing Officer disallowed the loss, considering it incurred due to infraction of law. The Tribunal observed that the imports were bona fide and made in the normal course of business. The supplier had supplied different goods than ordered, and the assessee had surrendered them to customs. The Tribunal found the claim admissible as a business loss and deleted the addition.

4. Disallowance of Travelling Expenses Rs. 2,000 and Telephone Expenses Rs. 1,500:
The Tribunal noted that no specifics were pointed out by the authorities justifying the disallowance of travelling and telephone expenses. Consequently, these disallowances were deleted.

5. Addition of Rs. 70,788 as Interest Income:
The Assessing Officer added Rs. 70,788 as interest on an amount of Rs. 5,89,900 based on a loose paper found during the search. The CIT(A) reduced the interest to Rs. 53,091. The Tribunal reiterated that the loose paper No. 97 had no probative value and deleted the addition of Rs. 53,091.

6. Addition of Rs. 11,300 as Income from Undisclosed Sources on Account of Investments in Colour TV and VCR:
The Assessing Officer added Rs. 20,000 for unexplained investment in a Colour TV and VCR. The CIT(A) deleted the addition for the Colour TV but retained Rs. 11,300 for the VCR. The Tribunal found it inconsistent to accept the ownership of the Colour TV by the assessee's daughter-in-law but not the VCR. The Tribunal deleted the addition of Rs. 11,300.

Conclusion:
In conclusion, the Tribunal allowed both appeals fully, quashing the reassessment proceedings, deleting the additions based on loose papers, and allowing the claims for stock loss and other expenses.

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