1977 (12) TMI 51 - AT - Income Tax

Summary

Issues Involved:
1. Addition to the trading account for the Dinjan Swimming Pool contract.
2. Addition of Rs. 97,127 as income from undisclosed sources.
3. Addition of Rs. 20,000 as unexplained cash deposit in the Hawlati account.

Issue-wise Detailed Analysis:

1. Addition to the Trading Account for the Dinjan Swimming Pool Contract:
The Income-tax Officer (ITO) made an addition of Rs. 6,422 to the trading account of the assessee for the Dinjan Swimming Pool contract, estimating the profit at 9% instead of the 6.70% shown by the assessee. The ITO justified this by comparing it to the previous year's profit rate of 11.3%. The assessee argued that the profit margin had decreased due to increased costs and time-lag. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, citing comparable cases.

Upon appeal, the tribunal found that while the ITO was justified in rejecting the trading results due to the absence of a consumption register, there was no basis for an arbitrary addition. The tribunal noted that the higher costs faced by the assessee were acknowledged, and there was no material evidence to suggest the profit was unreasonably low. Consequently, the addition of Rs. 6,422 was deleted.

2. Addition of Rs. 97,127 as Income from Undisclosed Sources:
The ITO added Rs. 97,127 to the assessee's income, alleging it was from undisclosed sources. This conclusion was based on the ITO's disbelief in the assessee's explanation that the money recorded in the Hawlati account was carried by various individuals from Tinsukia to Calcutta. The ITO found the witnesses' statements to be incredible and suspected they were tutored. The AAC concurred with the ITO, citing minor contradictions in the witnesses' testimonies.

In appeal, the tribunal observed that the ITO accepted the transmission of funds through banks and by the assessee and his son but doubted the transmission through other individuals. The tribunal found the witnesses' testimonies credible and noted that the discrepancies pointed out by the ITO were minor and adequately explained. The tribunal emphasized that rejecting the assessee's explanation did not automatically imply undisclosed income, especially without further material evidence. Additionally, the tribunal highlighted that Section 69A, which the ITO relied on, was inapplicable as it pertains to unrecorded investments, not recorded expenditures. Consequently, the addition of Rs. 97,127 was deleted.

3. Addition of Rs. 20,000 as Unexplained Cash Deposit in the Hawlati Account:
The ITO added Rs. 20,000 to the assessee's income, questioning the source of a cash deposit in the Hawlati account. The assessee initially explained that the amount came from encashing a cheque, but the ITO found this cheque was issued to Assam Small Industries Development Corporation. The assessee then clarified that the amount was taken from his son's Hawlati account, supported by contra-entries in both accounts. The AAC accepted this explanation and deleted the addition.

The tribunal upheld the AAC's decision, noting that the Revenue could not dispute the factual finding of contra-entries. Although the initial explanation was incorrect, the correct explanation was supported by the books, and there was no extra credit of Rs. 20,000 to explain. Therefore, the tribunal found no reason to interfere with the AAC's order.

Conclusion:
The tribunal allowed the assessee's appeal, deleting the additions of Rs. 6,422 and Rs. 97,127, and upheld the AAC's deletion of the Rs. 20,000 addition. The Income-tax Officer was directed to recompute the total income accordingly. The cross-objection of the Revenue was dismissed.