1978 (2) TMI 129 - AT - Income Tax

Summary

Issues Involved:
1. Additions for deficiency in gross profit.
2. Additions under the head "other sources" for unexplained credits.
3. Disallowance of interest payments.
4. Charging of interest under Section 217.

Issue-wise Detailed Analysis:

1. Additions for Deficiency in Gross Profit:
The Income Tax Officer (ITO) made additions of Rs. 17,000 and Rs. 15,000 for the assessment years 1963-64 and 1964-65, respectively, due to low gross profits in the branch. The ITO compared the gross profits with those of other dealers and found them deficient. However, the Appellate Assistant Commissioner (AAC) noted that the purchases and sales were fully vouched, and the gross profit percentages were higher than the comparable instances given by the ITO. The AAC deleted the additions, and this deletion was upheld by the Tribunal, noting that no suppression of sales or inflation of purchases was pointed out, and the book results were accepted in subsequent years.

2. Additions under the Head "Other Sources" for Unexplained Credits:
The ITO made additions under the head "other sources" for unexplained credits in the names of multani bankers. The assessee claimed these were genuine loans, supported by discharged hundies and interest vouchers. The AAC had earlier directed the ITO to examine the bankers and allow the assessee to cross-examine them if their testimony was adverse. The ITO did not comply with this directive and made the additions again. The AAC deleted these additions, and the Tribunal upheld this deletion, stating that the ITO should have allowed the assessee to cross-examine the bankers and that the materials available were insufficient to sustain the additions.

3. Disallowance of Interest Payments:
The ITO disallowed interest payments claimed by the assessee on the alleged loans. The AAC observed that interest had been paid by cheques and that the long lapse of time and the non-production of bankers could not be held against the assessee. The AAC deleted the disallowances, and the Tribunal upheld this decision, stating that the assessee had discharged its initial burden of proving the genuineness of the loans.

4. Charging of Interest under Section 217:
The ITO charged interest under Section 217 for the assessment years 1963-64 and 1964-65. The AAC directed that interest should be charged only for one year, as the assessments were completed one year after filing the returns. The Tribunal, however, held that the AAC was not justified in directing that interest under Section 217 should be charged only for one year. The Tribunal noted that no appeal lies to the AAC against the order charging interest under Section 217, referencing decisions from various High Courts. Consequently, the Tribunal deleted the AAC's direction regarding the interest under Section 217.

Conclusion:
The Tribunal upheld the AAC's deletions of additions for deficiency in gross profit and unexplained credits under the head "other sources," as well as the disallowance of interest payments. However, the Tribunal reversed the AAC's direction regarding the charging of interest under Section 217, stating that the AAC was not justified in modifying the interest charge. The appeals were allowed in part and dismissed in part accordingly.