1992 (3) TMI 319 - Commission - Income Tax

Issues Involved:
1. Investment in building construction
2. Investment in pigmy deposit
3. Amount of Rs. 1,20,000 seized during the search operations
4. Income from money-lending and commission on third-party loans

Detailed Analysis:

Investment in Building Construction:
The applicant constructed two properties at Kafflaripeth and Unkal, Hubli. The Kafflaripeth property was valued at Rs. 1,23,904 by a registered valuer and Rs. 3,18,700 by the Department's Valuation Cell. The applicant's counsel argued for a 10% allowance for self-supervision and credit for Rs. 30,000 worth of old materials used and sold. The Commission allowed a 10% allowance for self-supervision but denied the use of old materials in new construction. However, it accepted the Rs. 30,000 from the sale of old materials. Thus, the cost of construction was revised to Rs. 2,56,830, with Rs. 2 lakhs assessed as unexplained income over the assessment years 1984-85, 1985-86, and 1986-87. The Unkal property was valued at Rs. 1,28,100, with Rs. 36,400 explained, leaving Rs. 91,700 as unexplained income, assessed in the years 1987-88 and 1988-89.

Investment in Pigmy Deposit:
Documents indicated contributions to a "Pigmy deposit" scheme with amounts of Rs. 14,420, Rs. 16,738, and Rs. 14,890 for the assessment years 1986-87, 1987-88, and 1988-89, respectively. The applicant agreed to include these amounts in the revised computation of additional income for the first two assessment years.

Amount of Rs. 1,20,000 Seized During the Search Operations:
During the search, Rs. 1,20,000 was found, explained as Rs. 58,144 from the wine shop, Rs. 42,974 from the sale of the mother's jewelry, and a Rs. 20,000 loan from Jagadamba Mitra Mandal. The Assessing Officer accepted the source from the wine shop but doubted the jewelry sale due to the buyer's financial status. The Commission accepted the jewelry sale explanation based on confirmations from both the seller and buyer. The Rs. 20,000 loan was included in the additional income offered for 1988-89.

Income from Money-Lending and Commission on Third-Party Loans:
Seized documents showed names, dates, and amounts, indicating unaccounted money-lending activities. Interest was estimated at 21% per annum, and transactions without names were treated as third-party loans with a 3% commission. For 1986-87, Rs. 1,36,000 was treated as unexplained income with Rs. 7,140 as interest. For 1987-88, Rs. 1,53,000 was estimated as capital employed, with Rs. 17,000 as additional unexplained income and Rs. 32,130 as interest. Rs. 1,83,000 in third-party loans yielded Rs. 5,490 in commission income. For 1988-89, the applicant's additional income offer of Rs. 1,40,537 was accepted, including unexplained investments and commissions.

Directions Regarding Interest and Penalty:
The assessments for 1984-85 and 1985-86 were reopened under section 245E. Interest under sections 139(8) and 215/217 was retained for 1984-85 and revised for 1985-86. For 1986-87, interest under section 139(8) was levied for one year due to delayed return filing. For 1987-88, interest was levied for nine months. No delay was noted for 1988-89. Interest under section 215/217 was levied for one year for 1986-87, 1987-88, and 1988-89. Penalties under sections 271 and 273 were waived, and immunity from prosecution was granted due to the applicant's cooperation and full disclosure.

The Assessing Officer was directed to compute tax and interest, with the applicant agreeing to pay within 35 days. The order would be void if obtained by fraud or misrepresentation.

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