1980 (8) TMI 128 - AT - Income Tax

Summary

Issues Involved:
1. Application of Section 144B.
2. Additions made in determining the total income of the assessee.
3. Excessive wastage of newsprint.
4. Interest on borrowed money diverted to the Directors for personal need.

Issue-wise Detailed Analysis:

1. Application of Section 144B:
The assessee contended that Section 144B, which came into force on January 1, 1976, should not apply to the assessment year 1975-76 as the relevant law for making the assessment is the law on the first day of the relevant assessment year. The IAC and CIT (A) rejected this contention, stating that Section 144B is procedural and applicable to all assessments pending on January 1, 1976, or initiated after that date. The assessee argued that Section 144B affects substantive rights and should not apply to pending proceedings. However, the Tribunal held that limitation is a matter of procedure unless it has already expired, which was not the case here. The Tribunal concluded that the application of Section 144B was correct and must be upheld as it was enacted for the benefit of the assessee and did not affect any substantial rights.

2. Additions Made in Determining the Total Income of the Assessee:
The Tribunal addressed the merits of the appeal concerning the additions made by the ITO. The first addition in dispute was Rs. 86,000 for excessive wastage of newsprint. The ITO found discrepancies in the consumption records and made an addition based on estimated excessive wastage. The CIT (A) upheld the addition but reduced the amount to Rs. 86,000. The Tribunal found that the facts justified an addition but allowed some relief to the assessee by permitting a maximum wastage of 10% as per the Audit Bureau of Circulation standards, reducing the addition to Rs. 60,000.

3. Excessive Wastage of Newsprint:
The ITO found no day-to-day record of newsprint consumption and noted excessive wastage. The ITO made an addition of Rs. 1,12,000 for excessive wastage and Rs. 12,500 for unaccounted sale of waste. The CIT (A) found the assessee's tabular statement unreliable and upheld an addition of Rs. 86,000. The Tribunal agreed with the authorities that the assessee's records were unreliable and justified an addition but allowed a maximum wastage of 10%, reducing the addition to Rs. 60,000.

4. Interest on Borrowed Money Diverted to the Directors for Personal Need:
The ITO added Rs. 7,051 for interest on borrowed money diverted to the Directors for personal needs. The CIT (A) upheld this addition, finding that the interest-free advance to the Director was a benefit given without corresponding benefit to the assessee, attracting Section 40(c)(i) of the Act. The Tribunal agreed with the CIT (A) that the addition was sustainable as the borrowed funds were used for the Director's benefit without any benefit to the assessee.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the application of Section 144B, justified the addition for excessive wastage but reduced the amount to Rs. 60,000, and sustained the addition for interest on borrowed money diverted to the Directors.