2003 (4) TMI 82 - HC - Income Tax

Additions income from undisclosed sources - it is clear that no income was received by or accrued to the assessee and hence the addition in the process of the estimated price of the dust eliminated at the time of purchase is wholly arbitrary and illegal. - The appeal is allowed.

Summary

Issues:
1. Challenge to the impugned order of the Income-tax Appellate Tribunal for the assessment year 1988-89.
2. Discrepancy regarding addition of Rs. 72,82,610 under the proviso to section 145(1) of the Income-tax Act.
3. Dispute over addition of Rs. 4,44,605 on account of dust elimination.

Analysis:
1. The High Court heard the income-tax appeal challenging the order of the Income-tax Appellate Tribunal for the assessment year 1988-89. The appellant, a limited liability company engaged in manufacturing steel and ingots, faced discrepancies in the assessment. The Assessing Officer added Rs. 72,82,610 under the proviso to section 145(1) of the Income-tax Act, based on past practices of disbelieving the account books. However, the High Court found this addition arbitrary as the accounts were audited and accepted in previous years, and the appellant's product was under strict supervision by the Excise Department without any discrepancies.

2. The Assessing Officer further added Rs. 4,44,605 on account of dust elimination, alleging that the amount was transacted outside the books. The appellant contended that no such transaction occurred, and no amount was debited to the profit and loss account. Both appellate authorities upheld the addition, leading to the appeal. The High Court found the addition arbitrary, emphasizing that the petitioner eliminates dust from purchased scrap before manufacturing, without paying for the dust. The court ruled that there was no basis for the addition as no price was paid for the dust eliminated, and no expenditure was incurred by the appellant.

3. Referring to the case law of Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746, the High Court highlighted the principles of taxation based on income received or accrued. The court emphasized that no income was received or accrued to the assessee in the case of dust elimination. Therefore, the addition of Rs. 4,44,605 was deemed arbitrary and illegal. Consequently, the High Court allowed the appeal, ruling in favor of the assessee by deleting the addition on account of dust elimination.