1990 (1) TMI 140 - AT - Income Tax

Summary

Issues:
1. Disallowance of interest paid to partners under section 40(b).
2. Treatment of discrepancies in stock valuation for assessment years 1983-84 and 1984-85.

Analysis:
1. The appeal involved ITA No. 3100/Mds/88 by the assessee for the assessment year 1983-84 and ITA No. 3769/Mds/88 by the Revenue for the assessment year 1984-85. The issue revolved around the disallowance of interest paid to partners, Shri V.M. Ajmeera and Shri P.V. Ajmeera, by the I.T.O. under section 40(b). The CIT(A) upheld the inclusion of these amounts. The assessee argued that recent decisions by various High Courts supported the non-disallowance of interest payments. The Tribunal considered the Explanation introduced by the Taxation Laws (Amendment) Act, 1984, and held that the interest disallowance could not be made even for the assessment year prior to the introduction of the explanation. The Tribunal relied on the clarificatory nature of the explanation and previous court decisions to rule in favor of the assessee, stating that the interest disallowance was not warranted.

2. Another issue was the treatment of discrepancies in stock valuation for both assessment years. The I.T.O. noticed discrepancies in stock during a search but did not make any addition for the stock value difference. Instead, ad hoc additions of Rs. 20,000 for 1983-84 and Rs. 10,000 for 1984-85 were made. The CIT(A) upheld the addition for 1983-84, while the A.A.C. deleted the addition for 1984-85. The assessee argued against the ad hoc additions, citing similar deletions in subsequent years. The I.T.O. refrained from adjusting the stock value to avoid future adjustments, but the Tribunal held that ad hoc additions were unwarranted. Consequently, the Tribunal directed the deletion of the ad hoc addition for 1983-84 and upheld the A.A.C.'s decision to delete the addition for 1984-85.

In conclusion, the Tribunal allowed the appeal for the assessment year 1983-84 and dismissed the appeal for the assessment year 1984-85 based on the disallowance of interest paid to partners and the treatment of discrepancies in stock valuation.