1982 (12) TMI 82 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 10,000 as income from undisclosed sources.
2. Addition of Rs. 5,000 on account of low profit.

Analysis:

Issue 1: Addition of Rs. 10,000 as income from undisclosed sources
The Income Tax Officer (ITO) added Rs. 10,000 as income from undisclosed sources to the Assessee's AOP (Association of Persons). The ITO observed that the AOP consisted of two members who each contributed Rs. 5,000. The Assessee failed to provide an explanation regarding the source of this investment. The ITO considered the amount of Rs. 10,000 as assessable income from undisclosed sources in the hands of the AOP. The Assessee contended that both members had shown this income in their individual returns and that the AOP could not have earned Rs. 10,000 on the very first day of business. However, the AAC upheld the addition, stating that the AOP must explain cash credits in its books. The Appellate Tribunal found merit in the Assessee's arguments, noting that the members had declared the income in their individual returns. Considering the lack of evidence to prove the income belonged to the AOP, the Tribunal deleted the addition of Rs. 10,000.

Issue 2: Addition of Rs. 5,000 on account of low profit
Another addition of Rs. 5,000 was made by the ITO on account of low profit in the Assessee's kerosene retail business. The ITO noted that the profit exceeded the permissible limit set by the collector of the area. The AAC sustained this addition, emphasizing that the sales were not verifiable and the profit exceeded the allowed limit. The Assessee argued that the profit rate was fixed by the collector, but the Tribunal agreed with the AAC's decision, stating that the addition of Rs. 5,000 was valid. Therefore, the appeal on this point was rejected, and the overall appeal by the Assessee was partly allowed.

In conclusion, the Appellate Tribunal ITAT Indore ruled in favor of the Assessee regarding the addition of Rs. 10,000 as income from undisclosed sources, as there was no substantial evidence to prove the income belonged to the AOP. However, the addition of Rs. 5,000 on account of low profit was upheld, as the profit exceeded the permissible limit set by the collector.