1976 (10) TMI 72 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 4,800 in the "Interest" account
2. Addition of Rs. 4,182 to the Rahar account

Analysis:
Issue 1: Addition of Rs. 4,800 in the "Interest" account
In this case, the ITO added Rs. 4,800 to the income of the assessee as "hypothetical" interest due to cash transactions with another firm, alleging they were sister concerns and interest should have been charged. The AAC disagreed, stating it was the assessee's discretion to charge interest. The AAC's decision was upheld based on the principle that the assessee can decide whether to charge interest, as confirmed by a previous Tribunal order. The judgment referenced the Supreme Court decision in Commissioner of Income-tax, Gujarat vs. A. Raman and Co, emphasizing that only income accrued to the assessee is taxable. The ITO's decision was criticized as being based on conjecture, leading to the confirmation of the AAC's order.

Issue 2: Addition of Rs. 4,182 to the Rahar account
The ITO estimated the sales of the assessee at Rs. 1,90,000 and applied a gross profit rate of 5% due to lack of verifiable accounts, resulting in an addition of Rs. 4,182 to the trading account. On appeal, the AAC reduced the sales to Rs. 1,85,000 and adopted a gross profit rate of 4%, sustaining an addition of Rs. 2,082. The judgment highlighted that the ITO did not provide any comparable case to justify the 5% gross profit rate, leading to the dismissal of the appeal. The AAC's exercise of discretion in reducing the estimated sales and adjusting the gross profit rate was deemed judicial, resulting in the confirmation of the AAC's order.

In conclusion, the appeal was dismissed, upholding the AAC's decisions on both issues regarding the additions made to the income of the assessee for the relevant assessment year.