2001 (5) TMI 809 - AT - Income Tax

Summary

Issues Involved:
1. Computation of notional interest on deposits with M/s. Bijli Cotton Mills, Hathras (BCM).
2. Addition of Rs. 2,885 as unexplained expenditure for the assessment year 1979-80.
3. Addition of short interest/rent received for the assessment years 1983-84, 1984-85, and 1985-86.
4. Levy of interest under section 139(8)/215/217 of the Act for the assessment years 1985-86 and 1986-87.

Issue-wise Detailed Analysis:

1. Computation of Notional Interest:
The primary issue in all the years pertains to the computation of notional interest on deposits made with M/s. Bijli Cotton Mills (BCM). The Assessing Officer (AO) noted that the assessee had not declared any interest income from BCM for the assessment years 1979-80 to 1986-87, despite having done so up to the assessment year 1978-79. The assessee explained that BCM was taken over by the Government and later nationalized, and the compensation awarded was insufficient to cover the dues of higher-priority creditors, leaving nothing for the assessee. The AO, however, applied a 15% interest rate, later modified to 12% by the Commissioner of Income Tax (Appeals) [CIT(A)], and included the notional interest in the taxable income. The Tribunal held that since the principal amount ceased to exist due to nationalization, there was no accrual of interest. Thus, the addition of notional interest was deleted for all the years under consideration.

2. Addition of Rs. 2,885 as Unexplained Expenditure:
For the assessment year 1979-80, the AO added Rs. 2,885 as unexplained expenditure under section 69C of the Act, which was sustained by the CIT(A). The Tribunal noted that while the addition under section 69C was justified, the assessee was entitled to a deduction for the actual expenditure incurred. Thus, the AO was directed to allow the deduction, and the ground of appeal was decided with these observations.

3. Addition of Short Interest/Rent Received:
In the assessment years 1983-84, 1984-85, and 1985-86, the AO added amounts for short interest/rent received from M/s. S.B. Industries, which was upheld by the CIT(A). The assessee argued that rental and interest income were accounted for on an actual receipt basis, which could vary each year. The Tribunal agreed that variations in actual receipts could not justify the additions and thus deleted the additions sustained by the CIT(A) for these years.

4. Levy of Interest under Section 139(8)/215/217:
The assessee challenged the levy of interest under section 139(8)/215/217 of the Act for the assessment years 1985-86 and 1986-87. However, as these grounds were not pressed during the hearing, they were dismissed.

Conclusion:
The Tribunal partly allowed the appeals for the assessment years 1979-80, 1985-86, and 1986-87, and fully allowed the appeals for the assessment years 1980-81, 1981-82, 1982-83, 1983-84, and 1984-85.