1994 (9) TMI 29 - HC - Income Tax

Appellate Tribunal correct in deleting income additions for assessment years 1972-73 and 1973-74.

The Appellate Tribunal was correct in deleting additions for the assessment years 1972-73 and 1973-74. The Tribunal found that the Income-tax Officer ... Accrual Of Income, Money Lending Business, Real Income, Total Income Issues:1. Whether the Appellate Tribunal was right in deleting additions for the assessment years 1972-73 and 1973-74.2. Whether the Appellate Tribunal was justified in allowing the assessee's appeal based on the absence of a specific finding by the Income-tax Officer regarding the true profits.Analysis:Issue 1:The case involved an assessee engaged in lending and receiving money, following a mixed accounting system. The Income-tax Officer added a sum to the assessee's income due to unrecorded interest on a loan. The Appellate Assistant Commissioner upheld this addition, but the Tribunal disagreed. The Tribunal held that as long as the true profit could be determined from the account books, the Income-tax Officer must assess it accurately. The High Court noted that the system of accounting had been previously accepted by the Department, and the Income-tax Officer failed to prove that the claimed income had not accrued. Referring to the Supreme Court's principles on income accrual, the Court found the Tribunal's decision to delete the additions appropriate, answering the first question in the affirmative.Issue 2:The second question was intertwined with the first, focusing on the justification for adding interest to the assessee's income. The Income-tax Officer contended that the assessee's accounting method was incorrect, combining cash and mercantile systems. However, the Court observed that the Officer did not attempt to ascertain the true profits based on the account books provided. Given the consistency in the assessee's accounting practices and the previous accurate assessments, the Court concluded that the Income-tax Officer erred in not following the correct legal principle for profit ascertainment. Therefore, the Tribunal's decision to disallow the addition was upheld, leading to an affirmative answer to the second question as well.