1987 (4) TMI 130 - AT - Income Tax

Summary

Issues Involved:
1. Clubbing of incomes from Naresh Powerloom Factory and Dinesh Textile Industries with the income of the assessee.
2. Deletion of trading addition of Rs. 15,700.

Detailed Analysis:

1. Clubbing of Incomes from Naresh Powerloom Factory and Dinesh Textile Industries with the Income of the Assessee:
The revenue appealed against the CIT(A)'s order, which deleted the incomes from Naresh Powerloom Factory and Dinesh Textile Industries, initially clubbed with the assessee's income on the grounds of being benami concerns. The Senior Departmental Representative argued that these businesses, claimed to be owned by the assessee's wife and mother-in-law, were, in fact, controlled by the assessee. He cited several pieces of evidence, including a common cash book seized during a survey, which recorded transactions for all concerns and indicated interlinked finances, common employees, and purchases and sales between the businesses.

The representative highlighted that the assessee admitted to controlling all the businesses and that the initial assessments of the two ladies were done summarily. The common cash book, which did not contain personal withdrawals, was argued to be a tool for tax evasion. The CIT(A), however, found the evidence inconclusive, noting that the businesses had separate power connections, trade marks, licenses, and bank accounts. The CIT(A) also considered the capital brought in by the ladies, which was claimed to be from tailoring and other small businesses, and found no substantial evidence to contradict these claims.

The Tribunal noted that the initial capital brought by the ladies was accepted in their assessments under section 143(3), and the department failed to provide evidence to refute these claims. The Tribunal also observed that the common cash book was more of a memoranda book and not the main record of transactions. Considering these points, the Tribunal upheld the CIT(A)'s decision, rejecting the revenue's claim that the businesses were benami.

2. Deletion of Trading Addition of Rs. 15,700:
The revenue also contested the deletion of a trading addition of Rs. 15,700. The ITO had made this addition due to the absence of manufacturing records and stock registers, and the common cash book containing entries not to be accounted for, indicating unreliable books of accounts. The CIT(A) applied a gross profit rate of 4.5% based on similar businesses and deleted the addition.

The Tribunal found that the CIT(A)'s application of the gross profit rate was based on comparable cases and was reasonable. The department did not provide any substantial evidence to challenge the CIT(A)'s findings. Therefore, the Tribunal dismissed the departmental appeal regarding the trading addition.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the incomes from Naresh Powerloom Factory and Dinesh Textile Industries from the assessee's income and confirmed the deletion of the trading addition of Rs. 15,700. The appeal by the revenue was dismissed in its entirety.