1984 (8) TMI 99 - AT - Income Tax

Advance Tax Assessment Order Assessment Proceedings Assessment Year Interest Payable By Assessee Late Filing Original Assessment Revised Return Time Limit For Completion

Issues Involved:
1. Estimate of gross profit.
2. Disallowance of salary paid to sons.
3. Depreciation on building and furniture.
4. Levy of interest under sections 139(8) and 217.
5. Validity of assessment due to limitation.

Detailed Analysis:

1. Estimate of Gross Profit:

For the assessment years 1973-74 to 1978-79, the primary issue revolved around the estimation of gross profit. The Income Tax Officer (ITO) had estimated higher sales and applied a gross profit rate of 12.5%, which was contested by the assessee. The Appellate Assistant Commissioner (AAC) found discrepancies in the ITO's calculations and adjusted the sales figures to align with the books of account. The AAC then estimated the gross profit at 11.5%, which was deemed reasonable considering the volume and nature of the business. The Tribunal upheld the AAC's estimate, noting that the books were not maintained in a verifiable manner and the gross profit estimate of 11.5% was not excessive, capricious, or arbitrary.

2. Disallowance of Salary Paid to Sons:

For the assessment years 1975-76 to 1978-79, the ITO disallowed significant portions of the salary paid to the assessee's sons, citing lack of evidence and qualifications. The AAC partially allowed the salary payments, reasoning that the sons were regular employees and the payments were recorded in the books. The AAC restricted the disallowance to a reasonable amount based on the sons' contributions to the business. The Tribunal modified the AAC's disallowance, allowing a higher salary per month to each son, considering the close relationship and the services rendered.

3. Depreciation on Building and Furniture:

The objections regarding depreciation on building and furniture were not pressed by the assessee for the assessment years in question and were hence rejected by the Tribunal.

4. Levy of Interest under Sections 139(8) and 217:

The ITO had levied interest under sections 139(8) and 217 for the assessment years 1973-74 to 1978-79. The assessee raised objections to these levies for the first time before the Tribunal. The Tribunal allowed the objections, citing the Karnataka High Court's decision in Charles D'Souza v. CIT, which held that interest under these sections cannot be levied in cases of assessments made under section 147. Consequently, the Tribunal cancelled the interest levies for the relevant assessment years.

5. Validity of Assessment Due to Limitation:

For the assessment year 1977-78, the AAC had cancelled the assessment on the ground that it was barred by limitation. The ITO had issued a notice under section 148 and completed the assessment beyond the statutory period. The Tribunal upheld the AAC's decision, noting that the return filed on 13-12-1979 should have been processed under section 139(4) and the notice under section 148 was inoperative. The Tribunal also rejected the revenue's contention that the assessment could be extended under section 153(1)(b) due to initiation of proceedings under section 271(1)(c), as there was no material on record to show concealment by the assessee.

For the assessment year 1978-79, the Tribunal quashed the assessment as bad in law. The assessee had filed a return under section 139(4) on 13-12-1979 and a revised return on 12-3-1981. The Tribunal held that the revised return was not valid, and the assessment should have been completed by 31-3-1981 based on the original return. The assessment completed on 4-11-1981 was thus cancelled.

Conclusion:

The Tribunal's decisions across the appeals primarily focused on upholding reasonable estimates of gross profit, allowing reasonable salary payments to the assessee's sons, rejecting unpressed depreciation claims, cancelling interest levies under sections 139(8) and 217, and quashing assessments made beyond the statutory period. The Tribunal's thorough analysis ensured that the assessments were fair and in accordance with the legal provisions and judicial precedents.

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