COMMISSIONER OF INCOME TAX vs ARVIND H. SHAH

BY THE COURT:

The CIT, Gujarat III, Ahmedabad, by this application under s. 256(2) of the IT Act 1961 requires us to direct the Tribunal, Ahmedabad Bench B, to submit the statement of case and refer the following question said to be a question of law arising out of order made by the Tribunal in ITA 4547/Ahd/1992 for the asst. yr. 1987-88 in case of respondent-assessee :

"Whether the Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting additions of unexplained income of Rs. 2 lac and interest thereof of Rs. 24,000 ?"

The facts giving rise to this application as emerging from the material produced before us are that a search was carried out at the residential premises of the assessee on 14th Oct., 1986, during the course of which three promissory notes executed by Vinay Corporation in favour of the assessee were found. The three promissory notes are of the denomination of Rs. 50,000, 1 lac and 1 lac. The AO found that promissory note of Rs. 50,000 was bearing the date of 2nd June, 1982, and did not relate to the asst. yr. 1987-88 with which this application is concerned. However, it was of the opinion that from the other two promissory notes it was not possible to discern the date of their execution and having regard to the fact that search took place during the financial year 1986-87 the amount represented by the two promissory notes Rs. 2 lacs was brought to the tax by making additions in the income of the assessee for the asst. yr. 1987-88. The plea of the assessee had been that he had earlier made a declaration under the Amnesty Scheme declaring his undisclosed income between 1975 to 1979. The AO found that the declaration of the assessee under the Amnesty Scheme was not accepted and he, therefore, brought the amount represented by the two promissory notes and interest accrued thereon to tax.

It was also the case of the respondent that the addition of the amount represented by the promissory notes in question had already been added to the income of the assessee for the asst. yr. 1983-84 and the same amount cannot again be taxed in the asst. yr. 1987-88. As the AO had found that it is not discernible from promissory notes the year to which they belong he did not accept the plea of the assessee. However, the CIT(A) referring to certain noting made on the reverse of the promissory notes which bore the date lst May, 1982, held that the promissory notes were executed in 1982 and referring to the assessment order for the asst. yr. 1983-84 made on 30th March, 1988, deleted the additions made on account of income represented by promissory notes as the same had already suffered tax in the asst. yr. 1983-84. Referring to the additions made on account of Rs. 24,000 on the said sum on the ground that interest at the rate of 12 per cent per annum accrued to the assessee on the above mentioned promissory notes of Rs. 2 lacs, the CIT(A) found that the assessee has not followed the mercantile system of accounting and promissory notes were lying in the custody of the Department with the result that there is no scope for payment of any interest by the parties, there is substantial merit in the submission that interest income if any should be brought to the charge of tax on receipt basis only, therefore, addition of Rs. 24,000 was deleted. These findings were affirmed by the Tribunal and additions made by the AO stood deleted as per the orders of the CIT(A) whose order being affirmed by the Tribunal.

From the aforesaid facts it is apparent that the deletion of addition of Rs. 2 lacs has been founded on the finding of fact that the promissory notes were executed somewhere in 1982 and the income represented by these promissory notes had been already subjected to tax for the assessment in the asst. yr. 1983-84. These findings do not give rise to any question of law. So also the disallowance of Rs. 24,000 on the supposed accrued income on the amount of promissory notes has been deleted on the ground that the assessee is not maintaining his accounts on mercantile system, therefore, the income arising from the investment made in the Panchnama should be taxed on the basis of actual receipts only also do not give rise to any question of law as the primary findings on the basis of which the answer depends is a finding of fact.

We, therefore, are satisfied that the order of the Tribunal rejecting the application under s. 256(1) is not erroneous in any manner.

Application is rejected.

OPEN