Invalid declaration forms and stock discrepancy claims: tax addition failed, but interest was upheld on assessed tax due.

The note examines two tax issues: an addition based on alleged stock discrepancy, collusion with allied concerns, and a cash entry, where the record was found to lack a reliable nexus between the books and any unaccounted transaction, so the addition was not sustained; and levy of interest after invalid declaration forms deprived the assessee of concessional tax treatment, where the assessed tax was treated as tax admittedly payable and interest was chargeable from the date it became due. The stated ratio is that invalid declaration forms do not prevent statutory interest once tax is assessed at the correct rate.

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Issues: (i) Whether the addition made on the basis of alleged stock discrepancy, alleged collusion with other concerns, and the cash entry of Rs. 12,20,000 deserved to be sustained. (ii) Whether interest was leviable after rejection of the declaration forms and consequent assessment of tax at the full rate.

Issue (i): Whether the addition made on the basis of alleged stock discrepancy, alleged collusion with other concerns, and the cash entry of Rs. 12,20,000 deserved to be sustained.

Analysis: The assessment was founded on material gathered from inspection of connected premises and on assumptions that goods supplied through allied concerns were not accounted for by the assessee. The appellate record, however, did not establish a reliable nexus between the assessee's books, the cash entry, and any unaccounted sale or purchase. The finding of tax evasion was therefore held to rest on insufficient material, and the rejection of books of account on that basis was not accepted.

Conclusion: The addition was not sustained and the assessee succeeded on this issue.

Issue (ii): Whether interest was leviable after rejection of the declaration forms and consequent assessment of tax at the full rate.

Analysis: The declaration forms relied upon by the assessee were found to be invalid for the relevant assessment year, with the result that the concessional rate was not available. Once the tax became payable at the correct rate, the amount fell within the expression tax admittedly payable for purposes of interest. The statutory scheme and the governing precedent were applied to hold that interest followed from the date the tax became due and was not excluded merely because the assessee had claimed a concessional treatment that was not admissible.

Conclusion: Interest was leviable and this issue was decided against the assessee.

Final Conclusion: The revision succeeded only to the extent of restoration of interest, while the challenge to the addition failed. The net result was a partial allowance in favour of the Revenue.

Ratio Decidendi: Where concessional tax treatment is claimed on the basis of invalid declaration forms, the assessed tax is treated as tax admittedly payable and interest is chargeable under the statutory interest provision from the date the tax became due.

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