1988 (5) TMI 76 - AT - Income Tax

Tribunal adjusts tax assessment, permits full business expenses, rejects benami ownership claim

The Tribunal allowed the appeal in part by deleting additions related to unexplained cash and interest income, permitting business expenses in full, and ... - Issues Involved:1. Determination of the true owner of the business and income.2. Treatment of unexplained cash seized during the search.3. Allowance of business expenses.4. Inclusion of interest income.5. Levy of interest under sections 139(8) and 215.Issue-wise Detailed Analysis:1. Determination of the true owner of the business and income:The assessee contended that she was the genuine owner of her proprietary business, M/s Saraf International, and not a benami of her father or M/s Saraf Textile Mills P. Ltd. The business involved designing and stitching garments, and she had been filing returns since the assessment year 1977-78. The returns were accepted on a protective basis by the authorities, suspecting her to be a benami. The Tribunal noted that there was no evidence to prove that the assessee did not carry on any business or employ laborers. The authorities' suspicion was based on the fact that the business was related to M/s Saraf Textile Mills P. Ltd. However, the Tribunal observed that the evidence on record indicated that the assessee carried on the business until her marriage. The Tribunal concluded that the claim of the Revenue that she was a benami was baseless and unsupported by any cogent evidence.2. Treatment of unexplained cash seized during the search:A search conducted on the assessee's premises led to the seizure of cash from her bedroom and locker. The assessee explained that the cash in the locker was partly received as a gift from her grandfather and partly earned from her business. The Settlement Commission admitted the petition for settlement of income for the years 1977-78 to 1981-82, including the cash found in the locker. The Tribunal examined the records and found that the entries regarding the cash were already in the books at the time of seizure. The Tribunal rejected the Revenue's claim of manipulation of records and concluded that the cash seized could not be included as unexplained income for the assessment year 1982-83, as it was already accounted for in the books for the assessment year 1981-82.3. Allowance of business expenses:The assessee claimed various business expenses related to her proprietary concern, which were supported by vouchers. The Tribunal noted that the authorities had disallowed the expenses without any basis. The Tribunal observed that the expenses were duly recorded in the books and supported by evidence. It was further noted that the Revenue did not provide any material to counter the assessee's claim. The Tribunal allowed the expenses in full, concluding that the disallowance by the authorities was unwarranted.4. Inclusion of interest income:The assessee provided details of debtors and creditors and the interest income earned. The authorities included the interest income on a protective basis, suspecting it belonged to M/s Saraf Textile Mills P. Ltd. The Tribunal found that the authorities had confused themselves while examining the books and had only considered the receipt aspect of interest, ignoring the interest paid on loans. The Tribunal concluded that there was no basis for including the interest income on a protective basis and deleted the same.5. Levy of interest under sections 139(8) and 215:The assessee argued that the levy of interest was unjustified as she was under a bona fide belief that she was not liable. The Tribunal noted that the assessee had repeatedly requested the transfer of files to Bombay after her marriage, indicating no intention to evade the authorities. The Tribunal directed the ITO to consider the charge of interest with reference to Rule 117A and Rule 40, which provide for waiver and reduction of interest.Conclusion:The appeal was allowed in part. The Tribunal deleted the additions related to the unexplained cash and interest income, allowed the business expenses in full, and directed the ITO to reconsider the levy of interest under sections 139(8) and 215.