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TMI Blog1996 (9) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... such debtors amounting to Rs. 5,08,360 was furnished to the Assessing Officer (AO). The AO observed that overdue interest was charged by the assessee in case of some debtors whereas in some it was not so charged. He was of the view that since it was the policy of the assessee to charge overdue interest, the assessee ought to have done so in all the cases. The AO, therefore, computed the interest at the rate of 18% on such debtors, where no interest was charged and accordingly added a sum of Rs. 91,505 to the total income of the assessee. 2.2. The learned Departmental Representative strongly supported the order of the AO and urged for its restoration. Shri N.M. Ranka, the learned counsel for the assessee, on the other hand, submitted that the assessee's consistent policy has been to account for the interest as and when the debt was settled, because it was at the time of settling the debt only, the issue of interest was settled with the debtor. In some cases interest was charged, in some, it was not charged. Further, even in cases where it was charged, the rate was not uniform in all the cases. Everything depended on various exigencies of business. This policy has been accepted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93,924 mentioned in the first ground decided above. The same does not arise out of the order of the CIT(A) and, hence, the ground to that extent is misconceived and hence reject the misconceived portion included in the ground. 2.5. The second ground in the departmental appeal is to the effect that the CIT(A) erred in directing to include the income of the alleged benami concerns as declared by those concerns. 2.6. A survey under s. 133A was conducted on the group concerns of the assessee on 6th April, 1989. Certain documents, books of account and other material were impounded. In the opinion of the AO, the impounded material revealed that the assessee-firm had floated three other firms which were ostensibly owned by three different persons, but in reality they were benami concerns of the assessee. After considering the operational and various other aspects, the three concerns, viz., Manoj Textiles, Himmat Fabrics and Classic Fabrics were held to be benami concerns of the assessee. A gross profit rate of 6% was applied on the turnover declared by the three concerns and accordingly Rs. 2,49,543, Rs. 79,420 and Rs. 5,340 (totalling to Rs. 2,34,303) respectively, were added to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith an obstruse concept like `benami', it is apposite to be guided by the principles laid down by their Lordships of the superior Courts. A leading case on the subject, as referred to by the Bombay High Court in the case of Choithram Begraj Lalvaney vs. CIT (1992) 197 ITR 302 (Bom), is the decision of the Hon'ble Supreme Court in the case of Jaydayal Poddar vs. Mst. Bibi Hazra AIR 1974 SC 171, wherein the Supreme Court observed as follows: "Though the question, whether a particular sale is benami or not, is largely one of fact, and for determining this question, no absolute formula or acid test uniformly applicable in all situations, can be laid down, yet in weighing the probabilities and for gathering the relevant indicia, the Courts are usually guided by these circumstances: (1) the source from which the purchase money came; (2) the nature and possession of the property, after the purchase; (3) motive, if any, for giving the transaction a benami colour; (4) the position of the parties and the relationship, if any, between the claimant and the alleged benamidar; (5) the custody of the title deeds after the sale; and (6) the conduct of the parties concerned in dealing with the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whether there was diversion of profit and consequential benefit to the assessee-firm, it would be necessary to understand the modus operandi of the business transacted by the assessee-firm vis-a-vis the alleged benami concerns. 2.14. Prior to the setting up of the three concerns, the assessee used to get its "Vivek" brand suiting cloth manufactured from third parties. The assessee then used to process it and sell it in the market. When the three concerns were set up, these three concerns got the cloth manufactured from third parties under the brand name "Vivek". The three concerns processed the cloth and sold the same to the assessee-firm, which in turn, sold the same in the market. Thus, it is apparent that the value addition which was earlier done by the assessee-firm, was now done by the three concerns. The profit on this value addition, which was hitherto earned by the assessee-firm, was now earned, at least ostensibly, by the three concerns. To this extent, the circumstances do indicate deviation of profits. But still it cannot be finally concluded that they were the benami concerns of the assessee, because we have yet to deal with at least two more circumstances which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bly changed the course of our conclusion. But there is no such allegation on the assessee. The evidences brought on record by the Department to prove the benami character of the three concerns, so also certain defence taken by the learned counsel, like the bankers sending notices to the proprietors of the three concerns only, all these do throw some light on the issue, and have been considered by us but by themselves they do not take us to the root of the dispute. It is only by applying the tests laid down by the Hon'ble Supreme Court to the facts of the case, we could reach to the conclusion. 2.18. We, therefore, hold that M/s Manoj Textiles, M/s Himmat Fabrics and M/s Classic Fabrics are not the benami concerns of the assessee-firm and accordingly delete the additions sustained by the CIT(A) in respect of the profits of these three concerns. This takes care of the second ground in the appeal by the Department and of the only ground taken by the assessee in its appeal. 3. The third ground in the departmental appeal pertains to the deletion of disallowance of Rs. 7,500 in respect of salary payment to Shri Bharat Kumar. It was observed by the AO that Shri Bharat Kumar was a fami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the impugned amount represented cost of four brief-cases given to Dalals as incentives and hence, wholly for business consideration. He, therefore, deleted the disallowance. In our opinion too these are not advertisement expenses and hence, the CIT(A) was justified in allowing the same. We do not disturb his order. 3.4. The last disallowance pertains to Rs. 5,925 out of petrol expenses. This allowance represented 1/4th of the total expenses on petrol and depreciation on one car and a scooter on grounds of personal use. The CIT(A), considering the disallowance to be excessive, directed the AO to restrict it to 1/7th of the total. The directions of the CIT(A) is reasonable and, hence, we uphold the same. Asst. yr. 1988-89: 4. The first ground in the departmental appeal pertains to the deletion of accrued interest income of Rs. 74,376. The facts in respect of this disallowance are identical to the facts referred to in ground No. 1 in the appeal for asst. yr. 1987-88. For the reasons mentioned in our order for that year above, we uphold the order of the CIT(A). This also deals with the first ground in the cross-objections of the assessee and is rejected for the same reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in the assessee-firm in HUF capacity and besides devoting time, the finance of the HUF was also involved. Hence, in our opinion, there was no reason to make ad hoc disallowance. We, therefore, delete the disallowance of Rs. 9,000 sustained by the CIT(A). The third ground in the departmental appeal is rejected, the third ground in the assessee's appeal is allowed and the second ground in the assessee's cross-objection stands partly allowed. 4.5. The fourth ground in the appeal by the Department pertains to the deletion of disallowance of Rs. 6,640 out of various expenses. The AO made an ad hoc disallowance considering the same to be on higher side. As the AO had not pinpointed any specific head of expenditure which he thought to be on higher side, the CIT(A) deleted the disallowance. We also, in absence of any provision of law prescribing for any ad hoc disallowance, uphold the order of the CIT(A) and reject the ground of the Department. 4.6. The last ground relates to the deletion of the addition of Rs. 12,532 representing interest on advance made to Shri Bharat Kumar and Shri Rajendra Kumar. 4.7. The AO found that the assessee had advanced a sum of Rs. 25,009 and Rs. 44,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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