A perusal of section 14A (2)(supra), evinces that the amount of expenditure incurred in relation to income not includible in the total income shall be determined by the AO if the AO is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income not includible in the total income.
Admittedly there was no DTAA with Hongkong for the relevant year. As such we will restrict ourselves in examining the provisions of section 9(l)(vii) in order to ascertain the deductibility or otherwise of tax at source from the payment so made to the firm of legal advisors at Hongkong.
Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income show in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return.”
Whether, in the facts and circumstances of the case, the CIT(Appeals) is justified in holding that no addition can be made in the hands of the assessee towards undisclosed income from the liquor business carried on by the firms M/s. Malabar Associates.
The facts leading up to the levy of penalty have been stated in the dissenting orders and there is no dispute regarding their accuracy. The only question is whether on these facts there was reasonable cause within the meaning of sec.273B preventing the assessee from accepting the sum of Rs. 15,00,000 from N.K. Chemist by account payee cheque or draft as required by sec.269SS.
I entirely agree that unless and until the terms and conditions of advance are known and agreed between the parties or through Government of Kerala, assessee will not acquire any right to receive interest on the advanced loan and no income would accrue by way of interest. This is well settled position.
As regards the issue raised with regard to rejecting the method in the change of valuation of closing stock, we find that the finding arrived at by the three authorities below that the change in the valuation of closing stock was not bona fide is a pure finding of fact and no question of law arises much less a substantial question of law.
We do not find any error in the approach of the authorities below. Merely because the interest was debited in the books of accounts maintained on mercantile basis would not mean that the interest had become due and accrued because admittedly the interest liability would become due not during the relevant previous year but only for the first time on 18.11.1996.
