1994 (11) TMI 194 - AT - Income Tax

Tribunal decision: Partial appeal success, borrowings for assets not advances, avoid double taxation.

The Tribunal partially allowed the assessee's appeal, directing the deletion of certain additions and confirming others. It held that the amounts noted on ... - Issues Involved:1. Whether the amounts noted on the piece of paper found during the search represent borrowings or advances due.2. Applicability of section 68 of the IT Act, 1961.3. Correctness of the additions made by the Assessing Officer based on the evidence found during the search.Summary:Issue 1: Representation of Amounts on the Piece of PaperThe primary contention was whether the amounts noted on the piece of paper found during the search at the premises of M/s Kant Electronics represented borrowings or advances due. The assessee argued that these amounts were borrowings, some recorded in the books and some not, used for acquiring assets found during the search. The Assessing Officer treated these amounts as advances due and made additions accordingly. The Tribunal accepted the assessee's contention that the amounts represented borrowings, noting the statement of the partner, the capital of the partners, and the nature of the entries.Issue 2: Applicability of Section 68The Tribunal examined whether the amounts could be taxed u/s 68 of the IT Act, 1961, which deals with unexplained cash credits. It was argued that s. 68 could not be applied as the amounts were not credited in the books of account but noted on a piece of paper. The Tribunal agreed, stating that a 'piece of paper' cannot be construed to be a 'book' within the meaning of s. 68. Therefore, the additions made under this section were not justified.Issue 3: Correctness of Additions by the Assessing OfficerThe Tribunal reviewed the various additions made by the Assessing Officer. It was noted that the assessee had made a declaration of Rs. 18,00,416, and the partners declared Rs. 6,50,000 on account of chit fund and unrecorded advances. The Tribunal found that the amounts noted on the piece of paper represented borrowings used to acquire assets. It was held that taxing both the borrowings and the cost of assets would result in double taxation, which is against legal principles. The Tribunal directed the Assessing Officer to consider the computation as provided by the assessee and delete the unjustified additions.Conclusion:The appeal of the assessee was partly allowed, with the Tribunal directing the deletion of certain additions and confirming others based on the evidence and explanations provided. The Tribunal emphasized the importance of not taxing the same amount twice and the need for the Assessing Officer to consider the explanations judiciously.