1986 (2) TMI 106 - AT - Income Tax

Summary

Issues: Assessment of profit under s. 41(2) of the IT Act, 1961 and investment made by the assessee in purchasing a new truck during the relevant period.

Assessment of Profit under s. 41(2): The appeal was against the order of the AAC concerning the assessment order for 1980-81. The primary issue was the assessment of profit under s. 41(2) of the IT Act, 1961, related to the sale of a truck purchased in 1973. The ITO assessed the profit at Rs. 5,881 based on the written down value of the truck at Rs. 5,490. The assessee argued that only the depreciation allowed in the previous year should be reduced from the purchase price to determine the written down value. After reviewing the assessment orders for 1978-79 and 1979-80, it was found that only Rs. 161 was allowed as depreciation in the instant year. Consequently, the profit under s. 41(2) was adjusted to Rs. 2,471 instead of Rs. 2,310 as per the AAC's order.

Investment in New Truck: The second issue pertained to the investment made by the assessee in purchasing a new truck during the relevant period. The assessee made deposits totaling Rs. 43,500 in the bank, which were withdrawn for the truck purchase. The ITO added Rs. 33,500 to the assessee's income as undisclosed sources, despite the explanation that the deposits were from past savings. The AAC accepted the explanation and deleted the addition. The Tribunal found the AAC's decision appropriate, noting the rapid accumulation of savings before the truck purchase. The Tribunal emphasized that suspicion alone cannot lead to a decision, highlighting the natural timing of the savings' availability for the investment. Considering the assessee's history of income and savings, the Tribunal endorsed the AAC's finding that the source of the bank deposits was adequately explained by the assessee.

Conclusion: The Tribunal partially allowed the appeal, modifying the profit assessment under s. 41(2) and upholding the explanation regarding the investment in the new truck. The judgment emphasized the need to view the assessee's financial affairs in the right perspective, rejecting mere suspicion without substantial evidence.