1979 (7) TMI 128 - AT - Income Tax

Summary

Issues Involved:

1. Genuineness of cash credits.
2. Application of net profit rate.
3. Disallowance of interest payment on loans.
4. Penalty for concealment of income under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Genuineness of Cash Credits:

The assessee, a registered firm, was required by the ITO to prove cash credits amounting to Rs. 22,000. The ITO found these credits to be non-genuine. The AAC, on appeal, accepted all cash credits except for Rs. 10,000 in the name of Shri Kundanlal. The Tribunal reviewed the evidence, including the statement of Shri Kundanlal, who denied advancing the loan. However, the Tribunal noted that Shri Kundanlal had sufficient cash balances and had made other similar deposits. The Tribunal found inconsistencies in Shri Kundanlal's statements and concluded that the cash credit of Rs. 10,000 was genuine. Consequently, the addition of Rs. 10,000 was deleted.

2. Application of Net Profit Rate:

The ITO applied a net profit rate of 15% on the disclosed receipts of Rs. 6,84,700 after rejecting the book results. The AAC upheld this application. The assessee contended that the cost of building materials supplied by the Department should be excluded from total receipts as per the Supreme Court decision in Brij Bhushanlal Parduman Kumar vs. CIT. The Tribunal agreed, stating that the cost of building materials should be excluded, and the net profit rate should be applied to the net receipts. The Tribunal directed the ITO to recalculate the net receipts accordingly.

3. Disallowance of Interest Payment on Loans:

The assessee claimed an interest payment of Rs. 10,914 on loans borrowed for the contract work. The authorities disallowed this claim, arguing that the net profit rate was already applied. The Tribunal upheld this disallowance, reasoning that since the net profit rate accounted for all business expenses, a separate claim for interest payment could not be allowed.

4. Penalty for Concealment of Income under Section 271(1)(c):

The ITO imposed a penalty of Rs. 10,000 for concealment of income, based on the disallowed cash credit of Rs. 10,000 in the name of Shri Kundanlal. Since the Tribunal found the cash credit to be genuine and deleted the addition, the basis for the penalty no longer existed. Consequently, the Tribunal canceled the penalty order.

Conclusion:

The Tribunal allowed the appeal in part, directing the ITO to exclude the cost of building materials from total receipts and apply the net profit rate to the net receipts. The Tribunal also deleted the addition of Rs. 10,000 for cash credit and canceled the penalty for concealment of income.