1998 (1) TMI 112 - AT - Income Tax

Issues Involved:

1. Validity of statement of disclosure.
2. Addition of notional interest.
3. Addition of provision for sales-tax.
4. Addition of cash found at Pasoond Unit.
5. Addition based on diary entries.
6. Rejection of claim of rebate u/s 80HHC.
7. Levy of interest u/s 139(8) and initiation of penalty proceedings u/s 271(1)(c) and 273(1)(A).

Summary:

1. Validity of Statement of Disclosure:

The assessee withdrew Ground No. 1 regarding the validity of the statement of disclosure made with the Income-tax Department. Consequently, this ground was rejected.

2. Addition of Notional Interest:

Ground No. 2.i addressed the sustenance of addition of Rs. 13,68,000 on account of notional interest from Ramganj Mandi Investments Ltd. (RMIL). The assessee-company had advanced a loan of Rs. 45 lakhs to RMIL, a 100% subsidiary, and waived the interest from 1-10-1986 onwards due to RMIL's financial difficulties. The Assessing Officer added Rs. 13,68,000 as income, arguing that the interest should have been charged based on the mercantile system of accounting. The CIT(A) upheld this addition. However, the Tribunal, referencing similar cases, concluded that no interest accrued after the resolution was passed by the Board of Directors on 31-12-1987. Therefore, this ground of the assessee was allowed, and the addition was deleted.

3. Addition of Provision for Sales-Tax:

Ground No. 2.ii involved the addition of Rs. 1,22,000 on account of provisions of sales-tax. The Assessing Officer disallowed this amount under section 43B, which was upheld by the CIT(A). The Tribunal found that the amount pertained to earlier years and section 43B was not applicable. Consequently, this addition was deleted.

4. Addition of Cash Found at Pasoond Unit:

Ground No. 2.iii concerned the addition of Rs. 80,000 found at Pasoond Unit, which the Assessing Officer added as concealed income. The CIT(A) upheld this addition, stating that the cash did not relate to the business of the appellant-company. The Tribunal agreed with the lower authorities, rejecting the assessee's claim that the cash represented private transactions by some officers.

5. Addition Based on Diary Entries:

Ground No. 2.iv addressed the addition of Rs. 76,997 based on a diary seized from Shri S.N. Maheshwari, indicating underbilling of sales. The Assessing Officer made the addition, which was confirmed by the CIT(A). The Tribunal found that the diary belonged to Shri S.N. Maheshwari and not the assessee, and thus, the addition was not justified. This ground of the assessee was allowed, and the addition was deleted.

6. Rejection of Claim of Rebate u/s 80HHC:

Ground No. 3.ii involved the rejection of the claim of rebate u/s 80HHC due to the non-filing of the required report along with the return. The CIT(A) confirmed the Assessing Officer's decision. The Tribunal found that the report was filed before the completion of the assessment, and substantial compliance was sufficient. Therefore, this ground of the assessee was allowed, and the rebate u/s 80HHC was granted.

7. Levy of Interest u/s 139(8) and Initiation of Penalty Proceedings u/s 271(1)(c) and 273(1)(A):

Ground No. 4 concerned the levy of interest u/s 139(8) and initiation of penalty proceedings u/s 271(1)(c) and 273(1)(A). The assessee did not press the issue of penalty initiation, and thus, this part was rejected. Regarding the levy of interest, the Tribunal directed the Assessing Officer to give relief as per the finally assessed income.

Conclusion:

The appeal of the assessee was partly allowed, with specific additions deleted and relief granted where justified.

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