ABDUL MAJEED T Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS I. T. R. arises out of the reference made by the Income-tax Appellate Tribunal, Cochin Bench, in R. A. No. 8 (Coch) of 1981 arising out of I. T. A. No. 8 (Coch) of 1981 for the assessment year 1977-78 to this court on the following facts.

(2.) THE assessee is carrying on business in textiles under the name and style "Textile Centre" at Ernakulam. For the assessment year 1977-78, the assessee filed a return declaring an income of Rs. 85,200, closing stock credited to trading account valued at Rs. 10,36,384.75 and the gross profit disclosed was at Rs. 5,67,261 which comes to 5.85 per cent. But on the basis of certain papers seized in the course of search under Section 132(1} of the Income-tax Act, as per the stock inventories seized, the closing stock as on December 31, 1976, comes to Rs. 12,17,727. THE Income-tax Officer, alleging that there is an understatement of the closing stock to the extent of Rs. 1,81,341 sent a draft assessment proposing to add this amount as the undisclosed income of the assessee. To the draft assessment, the assessee filed objections before the Income-tax Officer as well as the Inspecting Assistant Commissioner stating that the stock inventory prepared by the assessee as on December 30, 1976, and seized by the Department was prepared in a hurry on a single day on which date, there were sales. THE said inventory contained a lot of mistakes and duplications and there was excess reflected and subsequently on January 31, 1977, the assessee had taken a correct inventory and the stock as on December 31, 1976, was arrived at deducting the value of sales effected during the month of January at Rs. 10,36,384.75. It was also stated that in the seized inventory damaged goods were also noted, but the same was not taken into consideration for preparing the profit and loss account. THE value of damaged goods, according to the assessee, comes to Rs. 25,000 on a very moderate estimate. THE Inspecting Assistant Commissioner rejected the explanation of the assessee regarding the mistakes such as duplication in the entries but allowed a sum of Rs. 10,000 towards the value of damaged goods. THE Income-tax Officer, as per annexure A order accordingly added a sum of Rs. 1,71,531 being the amount of understatement in closing stock. Aggrieved by annexure A order of the Income-tax Officer, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) reiterating his objection on the above lines. THE Commissioner of Income-tax (Appeals) as per annexure B order rejected all the objections of the assessee and confirmed annexure A order of the Income-tax Officer. Aggrieved by annexure "B" order of the Commissioner of Income-tax (Appeals), the assessee went in appeal to the Income-tax Appellate Tribunal who by annexure C order rejected the appeal on all counts, sustaining the addition made by the Income-tax Officer and also rejecting the contention of the assessee regarding the levy of interest under Section 139(8) and Section 215 of the Income-tax Act holding that they have already upheld the addition and in that light the assessee would not be entitled to the reduction or cancellation of the interest. THE petitioner then moved this court in O. P. No. 960 of 1982-R and in accordance with the judgment of this court in the aforesaid writ petition, the Tribunal was directed to draw up the statement of the case to this court. In compliance with the direction, the Tribunal drew up the statement of the case and referred the following questions to this court for its opinion :

(3.) AS regards the second question regarding the legality of the levy of interest under Section 139(8) and Section 215 of the Income-tax Act, learned counsel for the Revenue in fairness conceded that the matter is squarely covered by the decision of the Supreme Court in Central Provinces and Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961 wherein it has been held that inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all. In the above view of the matter, the second question has to be answered in the negative, in favour of the assessee and against the Revenue.