1995 (9) TMI 115 - AT - Income Tax

Summary

Issues Involved:

1. Validity of the AO's rejection of the assessee's book results and the estimation of sales and gross profit.
2. Disallowance of unpaid sales tax under Section 43B.
3. Disallowance of car expenses and depreciation for personal use.
4. Addition of unexplained deposits in the accounts of various persons.
5. Deletion of unexplained cash credits in the names of the partners.

Issue-wise Detailed Analysis:

1. Validity of the AO's rejection of the assessee's book results and the estimation of sales and gross profit:

The AO rejected the assessee's book results citing defects in the maintenance of the books of account and estimated sales at Rs. 70 lakhs with a gross profit rate of 15%. The CIT(A) revised this, estimating sales at Rs. 46,50,000 with a gross profit rate of 11.5%. The Tribunal found that the AO did not provide specific instances to substantiate the alleged defects and that the opening and closing stock figures were accepted for other assessment years. The Tribunal held that the rejection of the book results was unjustified as no specific findings were given based on relevant material. Consequently, the AO's addition of Rs. 6,05,492 on account of extra profit and the CIT(A)'s revised estimation were not upheld.

2. Disallowance of unpaid sales tax under Section 43B:

The AO disallowed Rs. 63,965 on account of unpaid sales tax, which was confirmed by the CIT(A) based on the amended provisions of the Act. However, the Tribunal held that since the amounts were paid on 1st Dec. 1986, before the due date for filing the return under Section 139(1), the addition could not be made. This decision was based on the judgment of the Patna High Court in Jamshedpur Motor Accessories Stores vs. Union of India & Ors.

3. Disallowance of car expenses and depreciation for personal use:

The AO disallowed 1/4th of the car expenses and depreciation for personal use, which was confirmed by the CIT(A). The Tribunal found these disallowances to be on the high side and reduced them to 1/6th.

4. Addition of unexplained deposits in the accounts of various persons:

Ground No. 3 in the assessee's appeal regarding the addition of Rs. 5,55,000 towards unexplained deposits was not pressed during the hearing and was dismissed accordingly.

5. Deletion of unexplained cash credits in the names of the partners:

The AO added Rs. 5,85,000 as unexplained cash credits in the accounts of the partners, which was deleted by the CIT(A). The CIT(A) observed that the partners had declared the silver sold under the Amnesty scheme, and the capital gains were accepted in their personal returns. The Tribunal upheld the CIT(A)'s decision, noting that the existence of the silver was accepted in the wealth tax assessments of the partners, and no material indicated that the credits were the firm's profits. The Tribunal relied on the Allahabad High Court's judgment in Jaiswal Motor Finance, which held that cash credits in partners' accounts, if received by the firm from the partners, cannot be assessed in the firm's hands under Section 68 in the absence of material indicating they were the firm's profits.

Conclusion:

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal. The AO's rejection of the book results and the estimation of sales and gross profit were found unjustified, and the disallowance of unpaid sales tax under Section 43B was deleted. The disallowance of car expenses and depreciation was reduced, and the addition of unexplained cash credits in the partners' accounts was deleted.