Rajasthan High Court - Jaipur
Asstt. Cit vs Laxmi Narayan Mehta on 8 July, 2002
Equivalent citations: (2002)76TTJ(NULL)686
ORDER
S.R. Chauhan, J.M. As the above appeals are inter-related and involve common points, so we are disposing them off by this common order for the sake of convenience.
2. ITA Nos. 439/Jdpr/98, 622/Jp/97, 1757/Jp/94, 382/Jdpr/99 and 629/Jp/97 are all appeals by revenue for assessment years 1989-90 to 1993-94, respectively, and are directed against the orders of Commissioner (Appeals)/Deputy Commissioner (Appeals), Jodhpur, dated 27-3-1998, 26-12-1996, 27-6-1994, 12-4-1999 and 26-12-1996, respectively.
3. We have heard the arguments of both the sides and also perused the records including the w/s of the learned authorised representative of assessee, whichever have been furnished on record.
4. In all the above 5 appeals of revenue, the department has raised the sole common substantive ground disputing the deletion by Commissioner (Appeals)/Deputy Commissioner (Appeals) of addition on account of interest income on debtors as Rs. 54,100, Rs. 79,000, Rs. 92,403, Rs. 1,06,595 and Rs. 83,450, respectively.
5. First we take up ITA No. 1757/Jp/94 being for assessment year 1991-92 for the sake of convenience as there is elaborate written submission of the learned authorised representative of assessee furnished on record in this appeal. The learned Departmental Representative of revenue has contended that the assessee has not been maintaining books of accounts. He has contended that the assessee himself has declared small amount of interest income from debtors and that also on estimate basis. He has contended that the assessing officer rightly estimated the debtors of assessee and calculated interest thereon and made the additions but the Commissioner (Appeals)/Deputy Commissioner (Appeals) has deleted the said additions in respect of assessee's interest income from debtors made by assessing officer without sound basis. He has supported the orders of assessing officer.
6. As against the above, the learned authorised representative of assessee has contended that a search had been conducted in December, 1997 in the case of Shri L.N. Mehta (Ind.) and some diaries were found/seized during that search. He has contended that on the basis of the said seized diaries, the total debtors of the family were estimated from 1978 to 1987 and also as on 8-12-1987, and as on 31-3-1988. He has contended that there was estimation of total debtors of the family on the basis of seized diaries and from the same, the debtors belonging to individual family members were deducted so as to arrive at debtors belonging to assessee-HUF. He has contended that the debtors of assessee-HUF also included advance to L.N. Mehta, Ind. He has contended that there were some pawning debtors also but the same were covered by the list of debtors belonging to family members only. He has contended that the assessing officer estimated interest income on these debtors without any basis. He has contended that the assessing officer added the interest income of financial year 1987-88 in the debtors as on 31-3-1988, for the purpose of arriving at debtors as on 1-4-1988. He has contended that the assessing officer calculated interest income for financial year 1988-89 (assessment year 1989-90) at the rate of 18 per cent per annum on such amount. He has contended that thereafter the assessing officer worked out debtors by adding this calculated/estimated interest for financial year 1988-89 in the amount of debtors estimated as on 1-4-1988, and thereafter estimated interest for assessment year 1989-90 in the same manner; and the assessing officer has done working on estimate basis by similarly increasing the amount of debtors every year by the amount of notional interest calculated by him. It has been contended that the assessing officer has worked out the addition of interest (notional interest) on the amount of debtors as on 1-4-1990 being Rs. 5,11,352, by applying interest rate of 18 per cent per annum as under
Rs.
Debtors as on 31st March, 1988 (including advance of Rs. 75,000 to L.N. Mehta (Ind.)) 3,00,795 Add : Interest income @ 18 per cent estimated by assessing officer and other income for assessment year 1987-88 66,454 Debtors as on 1st April, 1988 3,67,249 Add : Notional interest income estimated by assessing officer for financial year 1988-89 @ 18% p.a. 66,100 Debtors as on 1st April, 1989 4,33,349 Add: Notional interest for financial year 1989-90 @ 18% p.a. 78,002 Debtors as on 1st April, 1990 5,11,351 It has been contended that the assessing officer thus worked out the notional interest on debtors of Rs. 5,11,351 at Rs. 92,043 and considering the declared interest at Rs. 1,000 the assessing officer made the addition of Rs. 91,043.
7. It has been contended that the assessee agreed for the amount of estimated debtors and did not file appeal against assessment order for assessment year 1988-89 to obviate litigation and to buy peace. It has also been contended that the copies of affidavits of some of the debtors, included in the list of debtors, but in fact not 0due, have also been filed. It has been contended that the additions of notional interest in assessment years 1989-90 and 1990-91 have already been deleted by Commissioner (Appeals). It has been contended that the assessing officer has not considered assessee's claim that most of the debtors have already been written off as bad debts during financial year 1988-89. It has been contended that the assessing officer has not considered the assessee's claim that some of the debtors were already barred by limitation, as more than three years have already passed, which is evident from the list of debtors as on 31-3-1985, and most of the debtors appearing in the list of debtors as on 31-3-1988, are the same as are there is the list of debtors as on 31-3-1985. It has been contended that when it is legally not possible to recover the principal amount, there is no question of interest. It has also been contended that some of the debtors were already realised, and thus non-existent as is evident from copies of affidavits of some of the debtors enclosed herewith. It has also been contended that when the list of debtors itself is on estimate basis, there is no justification for estimation of accrual of interest.
8. It has been contended that total debtors of assessee as on 31-3-1988, were estimated at Rs. 3,00,795, and the assessee has already written off debtors to the extent of Rs. 2,07,858 during financial year 1988-89, i.e., in assessment year 1989-90. It has been contended that the assessee's claim in this regard has been accepted by Deputy Commissioner (Appeals) vide his order dated 27-3-1998, and so there is no justification for interest on such written off debts. It has been contended that as regards the remaining debtors of Rs. 92,937, which included Rs. 75,000 to L.N. Metha, Ind. on interest has been accruing on such debtors, and the assessee has not charged any interest from L.N. Mehta, Karta. It has also been contended that the assessee was hardly having any pawning debtors. It has been contended that presuming that there were some pawning debtors, still there is no accrual of interest or the reason that immediately after search the pawning debtors started demanding return of their pawned articles ornaments, but the assessee was not in a position to do so and so such parties stated that there will not be accrual of interest from the date of search.
9. It has been contended that no interest has been received from the debtors, and so there is no justification of estimation of interest/taxable income, in the hands of the assessee. It has been contended that the assessing officer has not pointed out any evidence to support accrual of interest to the assessee, nor has he examined any debtor to verify the amount advanced and the receipt of interest. It has been contended that the addition on account of notional income (interest), is not justified. He has relied on Roop Chand v. Asstt. CIT 27 Tax World 27 (Jp), CIT v. A. Raman (1968) 67 ITR 11 (SC). It has been contended that the estimation of interest is hypothetical and not justified in law.
10. We have considered the rival contentions, the relevant material on record as also the cited decisions. In 27 Tax World 27 (supra), certain additions were made representing unexplained investment in advances together with interest thereon during assessment years 1985-86 and 1986-87, on the basis of incriminating material found during search. On the basis of those additions, the assessing officer made addition for notional interest on those advances, during subsequent assessment years 1989-90 and 1990-91, which the Tribunal, Jaipur, deleted, holding that assessing officer was not justified to add interest income on notional basis when in fact, there was neither any receipt nor accrual of income. The Tribunal also held that income-tax is a levy of income.
The Tribunal also held that the entries of advances in the seized diaries during earlier years cannot be said to be decisive for bringing the interest income to tax during subsequent years on notional basis. The Tribunal also held that additions for unexplained investment in advances during earlier years (assessment year 1985-86 and 1986-87) did not give rise to accrual of interest income in subsequent years (assessment year 1989-90 and 1990-91) in the absence of any inquiries from such debtors. From the perusal of record, we find that the Commissioner (Appeals) has observed in his impugned appellate order, (dated 27-6-1994, passed in Appeal No. 35/94-95 for assessment year 1991-92, before him) that he finds considerable substance in the arguments of the appellant to the effect that the estimate made by assessing officer was without any basis because no interest was charged from the debtors including the pawning debtors because the jewellery and ornaments were lying seized in the custody of department, and the appellant was unable to return the same to the debtors and, therefore, there was no question of charging interest from debtors whose goods could not be returned even against the payment of loans. The Commissioner (Appeals) has also considered therein the contention raised on behalf of the assessee-appellant that the debts, including pawned debtors, had become bad and time-barred because the same were not refunded within three years nor were renewed. With the above observations, the Commissioner (Appeals) held that the assessing officer made the addition in respect of interest on debtors, only on estimate and on the basis of conjunctures.
The Commissioner (Appeals) hold the addition to have been made on imaginary grounds in turn, not sustainable. Considering all the facts and circumstances of the case, including the fact that the assessing officer had taken the debtors of assessee-HUF only on estimate basis, by taking the total debtors of the family on the basis of seized diaries, deducting therefrom the debtors belonging to individual family members then arriving at the balance debtors and treating the same to be belonging to the assessee-HUF, as also the fact that the said debtors also included realised (non-existent) debtors, time-barred debtors, as also written off bad debts, pawned debtors, whose pawned articles could not be returned by assessee despite demand after search, the fact that earlier years estimated notional interest income was added to the next years opening debtors year after year, and that there is no material/evidence to support the charging/receipt of interest by assessee during these years and the interest income being estimated on notional basis, and taking circumspect view of the entire fact-situation, we find no fault with the impugned order of Commissioner (Appeals)/Deputy Commissioner (Appeals) in deleting the addition made on account of notional interest income on estimate basis. We, therefore, decline to interfere with the same.
11. In the result, revenue's Appeal No. 1757/Jp/94 is dismissed.
12. In the revenue's Appeal Nos. 439/Jdpr/98 for assessment year 1989-90, 622/Jp/97 for assessment year 1990-91, 382/Jdpr/99 for assessment year 1992-93 and 629/Jp/97 for assessment year 1993-94, the facts are broadly/basically similar to those of revenue's Appeal No. 1757/Jp/94 being for assessment year 1991-92, discussed above, we follow our conclusion/decision rendered to above on similar issue pertaining to addition on account of notional interest on the estimated debtors, raised therein, on the similar common issue involved in these 4 appeals, and accordingly hold the impugned appellate orders of the first appellate authority in these 4 appeals deleting the additions made by assessing officer on account of notional interest on estimate debtors of assessee, to be quite justified and not faulty; and so we decline to interfere with the same.
13. In the result, revenue's Appeal Nos. 439/Jdpr/98, 622/Jp/97, 382/Jdpr/99 and 629/Jp/97 are dismissed.