1991 (9) TMI 157 - AT - Income Tax

Summary

Issues Involved:
1. Reassessment under section 147 of the Act.
2. Addition of Rs. 10,79,845 to the total income.
3. Leviability of interest under sections 139 and 217.
4. Deletion of Rs. 3,00,000 on account of value of shops.
5. Disallowance of Rs. 20,000 on account of brokerage.

Detailed Analysis:

1. Reassessment under Section 147 of the Act:
The reassessment proceedings were challenged by the assessee on the grounds that there was no failure to disclose relevant facts for the assessment year 1982-83. The method of accounting followed by the assessee, which was on a cash basis, had been accepted by the Income-tax authorities for previous years. The firm was dissolved on 1-4-1982, and the dissolution deed was drawn accordingly. The ITO initiated reassessment proceedings under section 147 based on the unrealized amount of Rs. 10,79,845, which was to be recovered by the partners as per the dissolution deed. The ITO concluded that the unrealized amount should have been declared at market value as the closing stock, leading to the issuance of notice under section 148. The CIT(Appeals) confirmed the ITO's findings, but the Tribunal found that there was no failure on the part of the assessee to disclose material facts for the assessment year 1982-83. The Tribunal held that the reassessment under section 147 was not justified.

2. Addition of Rs. 10,79,845 to the Total Income:
The ITO added Rs. 10,79,845 to the total income, treating it as the value of closing stock not accounted for. The assessee argued that this amount represented recoverables from various agreements for the sale of shops and did not constitute closing stock. The Tribunal found that the recoverables were not the value of the closing stock but amounts to be received over a period of years from the sale of shops. The Tribunal concluded that there was no escapement of income for the assessment year 1982-83, and the addition of Rs. 10,79,845 was not justified.

3. Leviability of Interest under Sections 139 and 217:
The assessee challenged the levy of interest under sections 139 and 217, arguing that these sections authorize levy of interest only on regular assessment. The CIT(Appeals) had confirmed the charging of interest, distinguishing the decision of the Bombay High Court in the case of D. Swarup, ITO v. Gammon India Ltd. The Tribunal did not find it necessary to deal with this issue separately since the reassessment proceedings themselves were found to be invalid.

4. Deletion of Rs. 3,00,000 on Account of Value of Shops:
The CIT(Appeals) deleted the addition of Rs. 3,00,000 made by the ITO on account of the value of certain shops. The ITO had assumed that the sale of these shops was not disclosed. However, the CIT(Appeals) found that the right to construct the open space was sold, and the agreed price was included in the total amount of Rs. 10,79,845 as per the dissolution deed. The Tribunal agreed with the CIT(Appeals) and found no justification for the separate addition of Rs. 3,00,000.

5. Disallowance of Rs. 20,000 on Account of Brokerage:
The ITO disallowed Rs. 20,000 claimed as brokerage, stating that no details were filed. The CIT(Appeals) found that the brokerage was paid for legitimate business purposes and had been allowed in the original assessment. The Tribunal confirmed the CIT(Appeals)'s decision to delete the disallowance, finding it to be a bona fide business expenditure.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the reassessment under section 147 was not justified, and there was no escapement of income for the assessment year 1982-83. The additions made by the ITO were deleted, and the levy of interest under sections 139 and 217 was dismissed as redundant. The departmental appeal was dismissed, confirming the deletion of Rs. 3,00,000 and the allowance of Rs. 20,000 as brokerage.