1998 (8) TMI 43 - HC - Income Tax

Revenue's appeal fails as findings on Section 145(2) books and Section 40A(2)(a) rent remain factual

HC dismissed the Revenue's applications, affirming the Tribunal's findings as purely factual and holding that no substantial question of law arose. It ... Scope of section 145(2) - Maintenance of books of account - Income From Undisclosed Sources - Addition on excess raw material consumption - rent paid under section 40A(2)(a) - preponderance of probability - HELD THAT:- In our opinion, in view of the finding reached by the Tribunal that there were no discrepancies or defects pointed out in the books of account and further that they were regularly maintained and also on the finding that there was no material brought on record to establish that purchases or expenses were inflated or sales suppressed and also in view of the finding that this was not a case that there was no method of regular accounting employed, the Tribunal was fully justified in coming to the conclusion that the provisions of section 145(2) could not be invoked, This conclusion is based on findings of fact and raises no question of law. The Tribunal, as regards the raw material used, took note of the fact that, according to the assessee, the average weight changed from time to time looking to the quality and market requirements. The explanation so offered has not been controverted by the Revenue by bringing any material on record, as held by the Tribunal. Looking to the explanation offered and three sets of details of average weight found and furnished before the lower authorities on different occasions, the Tribunal observed that there was a preponderance of probability that the average weight of various items manufactured saw change from time to time from heavier quality to lighter quality and looking to such trend there was every possibility that the average weights of various items furnished during the appellate proceedings were in vogue during the current assessment year and the average weight thereafter, changed to the higher side. In our view, these are all questions of fact and there is no question of law involved. Disallowance of rent claimed under section 40A(2)(a) of the Act, the finding of the Tribunal on the question of reasonableness of lease rent raises no question of law. All these applications are therefore, rejected. Issues Involved:1. Interpretation of section 145(2) of the Income-tax Act, 1961 regarding maintenance of books of account.2. Treatment of excess raw material consumption in the assessment.3. Disallowance of rent paid under section 40A(2)(a) of the Act.Analysis:Interpretation of Section 145(2):The Revenue filed applications under section 256(2) of the Income-tax Act, 1961, questioning the Tribunal's decision regarding the invocation of section 145(2). The Tribunal found that the books of account were maintained correctly and completely, adopting the mercantile method of accounting. It was held that the Assessing Officer could only invoke section 145(2) if the books were found to be incorrect or incomplete, which was not the case here. The Tribunal concluded that there was no justification for invoking section 145(2) based on the lack of discrepancies or defects in the maintained books of account. The High Court agreed with the Tribunal's findings, stating that the conclusion was based on factual findings and did not raise any legal questions.Treatment of Excess Raw Material Consumption:Regarding the excess raw material consumption, the Tribunal considered the explanation provided by the assessee regarding the changing average weight of raw material based on quality and market requirements. The Tribunal observed a preponderance of probability that the average weights changed over time, leading to variations in consumption. The High Court deemed these findings as questions of fact without any legal implications.Disallowance of Rent under Section 40A(2)(a):The Tribunal's decision to delete the disallowance of rent claimed under section 40A(2)(a) was upheld by the High Court, stating that the Tribunal's assessment of the reasonableness of lease rent did not raise any legal issues.In conclusion, the High Court rejected all the applications, affirming the Tribunal's decision as there were no legal questions arising from the issues presented. The judgment emphasized that the conclusions were based on factual findings and interpretations of the relevant provisions of the Income-tax Act, 1961.