1981 (10) TMI 64 - AT - Income Tax

Summary

Issues:
1. Explanation of shortage claimed by the assessee in raw materials.
2. Validity of interest charged under sections 215 and 216 of the Act based on notice issued under section 210.

Detailed Analysis:

1. The first issue revolves around the explanation provided by the assessee regarding the shortage claimed in raw materials used for fertilizer production. The Income Tax Officer (ITO) initially found discrepancies in the shortage claimed by the assessee, leading to an additional profit assessment of Rs. 10,000. The CIT (Appeals) upheld this addition, stating that the assessee failed to explain the shortage adequately. However, the assessee argued that the shortage was mainly in cheap raw materials like dolomite and gypsum, which were stored in open due to high bardana prices, leading to rain-induced losses. The Appellate Tribunal accepted the assessee's explanation, noting that the shortages occurred in inexpensive materials stored openly, while costly materials showed lower shortages. Consequently, the additional profit assessment of Rs. 10,000 was deleted based on the satisfactory explanation provided by the assessee.

2. The second issue pertains to the validity of interest charged by the ITO under sections 215 and 216 of the Act based on a notice issued under section 210. The ITO issued a notice to the assessee for advance tax payment, which the assessee contested, claiming the notice was invalid as no tax was paid under section 140A for the relevant assessment year. The CIT (Appeals) accepted the assessee's argument, citing precedents and deleted the interest charged. The department challenged this decision, arguing that the notice issued under section 210 was valid, considering the tax liability and deductions. However, the Appellate Tribunal upheld the CIT (Appeals) decision, emphasizing that the notice was invalid as no tax was paid under section 140A for the relevant year. The Tribunal also highlighted that the notice should have been based on the latest completed assessment, which was on nil income, rendering the notice invalid. Consequently, the interest charged by the ITO was deemed unjustified, and the appeal of the department was dismissed.

In conclusion, the Appellate Tribunal partially allowed the assessee's appeal regarding the shortage explanation and dismissed the department's appeal concerning the interest charged under sections 215 and 216 of the Act based on an invalid notice issued under section 210.