1977 (6) TMI 56 - AT - Income Tax

Summary

Issues Involved:

1. Addition on account of interest on fixed deposits.
2. Addition arising out of income from unaccounted sales.
3. Correct amount of deduction on account of deficit in gold and silver.

Issue-wise Detailed Analysis:

1. Addition on account of interest on fixed deposits:

The assessee contested the addition of interest on fixed deposits, which was disallowed by the Assessing Officer (AO) at a rate of 10% for the block assessment years 1986-87 to 1995-96. The AO found that the deposits received by the assessee were not wholly utilized for business purposes and were partly diverted to close relatives at a lower interest rate. The AO disallowed 10% of the interest payment based on the assessee's alleged agreement, which the assessee denied. The Commissioner approved this disallowance to maintain a consistent stand, although the assessee had appealed against similar disallowances for the years 1991-92 and 1992-93, which were pending before the Tribunal. The Tribunal found that the disallowance was already made in the regular assessments for 1991-92 and 1992-93 and could not be considered as undisclosed income for the block assessment. The AO's assertion that the assessee agreed to the disallowance was deemed incorrect and an error of record. Consequently, the Tribunal held that this addition could not be sustained.

2. Addition arising out of income from unaccounted sales:

During the search, deficit stock in gold and silver jewellery was found, and unaccounted sales were noticed in loose slips. The AO calculated the total unaccounted sales and made additions for the years 1993-94 to 1996-97. However, the Commissioner only approved the addition of Rs. 2,68,235 for the assessment year 1996-97 and stated that no separate addition was required for unaccounted sales as per the slips found during the search. The Tribunal noted that the previous approval of the Commissioner was mandatory under section 158BG for making an assessment, and without such approval, the addition could not be sustained. The Tribunal remitted the issue back to the AO for fresh consideration, instructing the AO to provide an opportunity for hearing to the assessee.

3. Correct amount of deduction on account of deficit in gold and silver:

For the assessment year 1996-97, the assessee disputed the amount of deduction on account of deficit in gold and silver. The AO mentioned the deduction amount as Rs. 20,64,848, while the assessee claimed it should be Rs. 21,42,425. The Tribunal directed the AO to verify the figures from the records and rectify any mistake accordingly.

Conclusion:

The appeal was partly allowed. The Tribunal found that the addition on account of interest on fixed deposits could not be sustained as it did not constitute undisclosed income. The issue of addition from unaccounted sales was remitted back to the AO for reconsideration due to lack of the Commissioner's approval. The AO was also directed to verify and rectify the correct amount of deduction for the deficit in gold and silver.