1986 (12) TMI 87 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 8,834 in the Dalali Account
2. Charging of interest of Rs. 3,091 under section 139(8) of the Income Tax Act, 1961

Analysis:
1. The appeal involved challenging the addition of Rs. 8,834 in the Dalali Account. The assessee, a partnership concern dealing in cloth on a wholesale basis, made provisions for brokerage in the accounting year under appeal. The Assessing Officer added the credit balance in the Brokerage Account to the assessment, stating that the liability was not definite. The contention was that the provision should have been allowed as a proper deduction since the accounts were maintained on a mercantile basis. The Appellate Authority rejected the appeal, noting that the brokerage rates varied and were not uniformly at 1 percent, making it not a legally enforceable contractual liability.

2. The second issue pertained to the charging of interest under section 139(8) of the Income Tax Act, 1961. The Appellate Authority upheld the interest levy based on the Tribunal's decision in the assessee's earlier case. The appellant argued that the outstanding credit in the Brokerage account was adjusted in subsequent assessment years, indicating that the provision should have been allowed. However, the Tribunal found that the provision could not be precisely related to sales and brokers, as the assessee was unable to fix the provision vis-a-vis specified brokers. The Tribunal emphasized that allowing provisions for all sales without corresponding payments would set a wrong precedent and upheld the disallowance.

3. The alternative plea regarding the interest charged for the delay in filing the return was also rejected. The Appellate Authority upheld the interest charge for the month of December 1982, citing a judgment of the Hon'ble Allahabad High Court defining a complete month as a period of 30 days counted from the date of default. The appeal was ultimately dismissed, affirming the addition in the Dalali Account and the interest charged under section 139(8) of the Income Tax Act, 1961.