2003 (5) TMI 219 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of income of M/s. Altron Electronics assessed by the Assessing Officer in the hands of the assessee.
2. Quantum of profit declared by M/s. Altron Electronics.
3. Deletion of addition of Rs. 42,390 on account of unexplained investment in property.
4. Deletion of disallowance of Rs. 18,93,500 under section 40A(3) of the Income Tax Act.
5. General grounds.

Detailed Analysis:

1. Deletion of Addition of Income of M/s. Altron Electronics:
The central issue was whether the profit earned by M/s. Altron Electronics, a proprietary concern of the assessee, should be taxed in the hands of the assessee or the partnership firm M/s. P&D Traders. The assessee argued that the profit from M/s. Altron Electronics was diverted to M/s. P&D Traders as per section 16 of the Indian Partnership Act, 1932, and clause 11 of the partnership deed, which required partners to account for profits earned from competing businesses. The Revenue contended that the income was first accrued to the assessee and then transferred to the partnership firm, making it taxable in the hands of the assessee. The Tribunal concluded that the assessee failed to demonstrate that the profit was earned using the firm's property, business connection, or name, and thus, the income should be taxed in the hands of the assessee.

2. Quantum of Profit Declared by M/s. Altron Electronics:
The Assessing Officer estimated the profit at Rs. 2,77,590, while the assessee declared Rs. 2,69,824. The Tribunal upheld the CIT(A)'s decision to accept the assessee's declared profit, noting that the Revenue did not provide contrary material to challenge the CIT(A)'s findings.

3. Deletion of Addition of Rs. 42,390 on Account of Unexplained Investment in Property:
The addition was based on the difference between the valuation by the Departmental Valuation Officer and the value shown by the assessee. The CIT(A) found the difference to be minor and within acceptable limits, and the Tribunal upheld this finding, rejecting the Revenue's ground.

4. Deletion of Disallowance of Rs. 18,93,500 under Section 40A(3):
The Assessing Officer disallowed Rs. 18,93,500 for alleged cash payments exceeding the limit under section 40A(3). The CIT(A) deleted the disallowance, noting that no specific instances of violation were cited and the addition was made on an estimated basis. The Tribunal agreed, emphasizing the lack of evidence and upheld the CIT(A)'s decision.

5. General Grounds:
The general grounds raised by the Revenue were dismissed as they were not specific and did not require separate adjudication.

Conclusion:
The Tribunal allowed the Revenue's appeal in part by holding that the income of M/s. Altron Electronics should be taxed in the hands of the assessee. However, it upheld the CIT(A)'s decisions on the quantum of profit, deletion of addition for unexplained investment, and deletion of disallowance under section 40A(3). The cross-objection by the assessee was dismissed.