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Issues Involved:
1. Addition of Rs. 10,000 towards understatement of gross profit. 2. Inclusion of income from the business carried on in the name of P. Govinda Reddy & Co. 3. Addition on account of cash credits standing in the name of Sri Govinda Reddy. 4. Addition on account of cash credits standing in the name of Shri Bheemarao. 5. Levy of interest under Section 217. Issue-wise Detailed Analysis: 1. Addition of Rs. 10,000 towards understatement of gross profit: The assessee disclosed a gross profit of Rs. 71,621 on a turnover of Rs. 5,47,311, admitting a rate of 13.1%. The Income-tax Officer (ITO) observed that the result disclosed was low compared to the rate of 16% in similar cases. Due to discrepancies in the cost of beedi leaves and unsupported expenditure, the ITO rejected the book results and made an addition of Rs. 16,500. The Appellate Assistant Commissioner (AAC) restricted the addition to Rs. 10,000, bringing the gross profit rate to 15%. Both the department and the assessee contested this decision. The Tribunal found that the expenditure on beedi leaves was not fully supported and upheld the AAC's addition, considering it reasonable. Thus, the contentions of both the assessee and the department were rejected. 2. Inclusion of income from the business carried on in the name of P. Govinda Reddy & Co.: The ITO held that the business of P. Govinda Reddy & Co. belonged to the assessee and added the firm's income of Rs. 74,295 to the assessee's assessment. The AAC, however, concluded that only Sri Govinda Reddy was a benamidar of the assessee and included only his share income. The department contended that the entire income should be included, while the assessee argued that the firm was independent. The Tribunal referred to the AAC's order in the case of P. Govinda Reddy & Co., which established the firm as a separate entity with independent partners. Consequently, the Tribunal directed that the share income of Sri Govinda Reddy be deleted from the assessee's assessment, rejecting the department's contention and allowing the assessee's contention. 3. Addition on account of cash credits standing in the name of Sri Govinda Reddy: The ITO found several credits and debits in Sri Govinda Reddy's account, with a peak credit of Rs. 18,000. Despite Sri Govinda Reddy's explanation that the money came from agricultural savings, the ITO added the peak credit to the assessee's income. The AAC, considering the credits and debits in both the assessee's and the firm's books, restricted the addition to Rs. 4,339. The department and the assessee both contested this decision. The Tribunal found that Sri Govinda Reddy had substantial means and confirmed the transactions, thus deleting the addition sustained by the AAC. 4. Addition on account of cash credits standing in the name of Shri Bheemarao: The ITO added Rs. 21,131 to the assessee's income due to unsupported cash credits in Shri Bheemarao's account. The AAC gave a relief of Rs. 5,000, restricting the addition to Rs. 16,131. The department objected to the relief, while the assessee contested the addition. The Tribunal noted that Shri Bheemarao had substantial means and confirmed the transactions. Therefore, the Tribunal deleted the addition sustained by the AAC. 5. Levy of interest under Section 217: The assessee contested the levy of interest under Section 217, arguing that no opportunity was given to explain the non-filing of the estimate of advance tax and that no notice under Section 210 was served. The department argued that the levy of interest under Section 217 is not appealable. The Tribunal upheld the department's preliminary objection, stating that the Act does not provide for an appeal against the levy of interest under Section 217. The assessee could only seek a reduction in the quantum of interest based on the relief granted in the order. Thus, the Tribunal rejected the assessee's contention. Conclusion: The appeal by the department was dismissed, while the assessee's appeal and cross objection were partly allowed.
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