1993 (12) TMI 31 - HC - Income Tax

Tribunal Upholds Income-tax Act Section 145(2) Application for 1964-65 Assessment Year

The Tribunal correctly applied section 145(2) of the Income-tax Act, 1961 for the assessment year 1964-65 due to the lack of relevant records provided by ... Application of section 145(2) of the Income-tax Act, 1961 read with section 144 - reliability of books of account and satisfaction of assessing officer under section 145(2) - estimation of income on account of excess consumption of raw material - estimation of suppressed production (chhat and mapari bidis) - appreciation of oral and documentary evidence for computation of additionsApplication of section 145(2) of the Income-tax Act, 1961 read with section 144 - reliability of books of account and satisfaction of assessing officer under section 145(2) - Tribunal was right in holding that the Income-tax Officer correctly applied section 145(2) for assessment year 1964-65 and that the scope of section 145(2) differs from that of section 13 of the Indian Income-tax Act, 1922. - HELD THAT: - The Court accepted the factual findings that the assessee failed to produce day-to-day registers showing daily production, daily consumption of bidi leaves at each factory and records of daily collection of chhat and mapari bidis. In those circumstances the Income-tax Officer was not satisfied about the fairness or correctness of the accounts and was therefore entitled to proceed under the estimation provisions in section 144 read with section 145(2). The Tribunal's conclusion that section 145(2) was properly applied was affirmed on the basis that there was sufficient material to show the assessing officer's dissatisfaction with the accounts and to justify an assessment otherwise than on the basis of books.Answered in the affirmative in favour of the Revenue; application of section 145(2) upheld.Estimation of income on account of excess consumption of raw material - estimation of suppressed production (chhat and mapari bidis) - appreciation of oral and documentary evidence for computation of additions - Validity of the Tribunal's additions: (a) addition of Rs.1,00,000 for excess consumption of bidi leaves; (b) additions for suppressed production of chhat and mapari bidis. - HELD THAT: - (a) The Tribunal accepted a consumption norm of 1 seer 3 chataks per 1,000 bidis on limited material (a single register) but failed to account for bidi leaves consumed in production of chhat and mapari bidis when comparing total consumption. When chhat and mapari consumption is taken into account, the Court found no justification for the Rs.1,00,000 addition and held the Tribunal's addition in this respect was not supported by the material on record. (b) As to suppressed production, the Tribunal's findings that an average of 15 chhat bidis per worker per day (equating to 15 per 1,000 after allowances) and an average production of 800 bidis per worker per day, as well as estimate of 10 mapari bidis per 1,000, were based on evidence before it (witness testimony and other material). The Court held these appreciation-based findings were supported by material and not to be interfered with; however the assessee is entitled to credit for sale proceeds of chhat bidis actually disclosed in its books, and only the balance should be added.Tribunal's Rs.1,00,000 addition for excess leaf consumption set aside as unsupported; additions for suppressed chhat and mapari bidis upheld except that credit must be given for chhat bidi sales shown in books.Final Conclusion: Reference answered: (1) application of section 145(2) for assessment year 1964-65 was correct; (2) the Tribunal's addition of Rs.1,00,000 for excess consumption of bidi leaves is erroneous and set aside, while the additions for suppressed chhat and mapari bidis are sustained subject to credit for chhat bidi sales disclosed in the assessee's books. No order as to costs. Issues Involved:1. Application of section 145(2) of the Income-tax Act, 1961.2. Addition of amounts for excess consumption of bidi leaves and suppressed production of chhat and mapari bidis.Summary:Issue 1: Application of section 145(2) of the Income-tax Act, 1961The Tribunal was right in holding that the Income-tax Officer correctly applied section 145(2) of the Income-tax Act, 1961, for the assessee's assessment for the assessment year 1964-65. The assessee had not produced relevant records relating to its day-to-day manufacture of bidis, including the quantity of bidis manufactured daily, the figures of bidi leaves consumed per day in each factory, and the record relating to the daily collection of chhat and mapari bidis. The Tribunal correctly held that the Income-tax Officer was not satisfied with the fairness or correctness of the accounts of the assessee and was entitled to make an assessment in the manner provided in section 144. Therefore, Question No. 1 was answered in the affirmative and in favor of the Revenue.Issue 2: Addition of amounts for excess consumption of bidi leaves and suppressed production of chhat and mapari bidisThe Tribunal's conclusion directing the addition of Rs. 1 lakh on account of excess consumption of bidi leaves was not supported by the material on record. The Tribunal failed to take into account the bidi leaves consumed in the production of chhat and mapari bidis. Had this been done, there would not have been any need to add any amount under this head. Therefore, the addition of Rs. 1,00,000 by the Tribunal was not justified.On the question of suppression of production of chhat bidis, the Tribunal estimated 15 chhat bidis per day per worker based on the evidence of workers examined by the Income-tax Officer and the assessee. The Tribunal's estimate of average production per worker per day at 800 bidis was based on an appreciation of evidence. The Tribunal also considered that some chhat bidis were given to workers free of charge and for free advertisement and estimated the number of such chhat bidis at 3 per thousand. The assessee should be given credit for the sales of chhat bidis disclosed in their books of account, and only the balance quantity should be added under the head of suppressed production of chhat bidis.Regarding suppressed production of mapari bidis, the Tribunal estimated 10 mapari bidis per thousand per workman. The Tribunal did not accept the assessee's contention that mapari bidis were included in the production figures of bidis. The Tribunal found that mapari bidis were not included in the production figures of the assessee.Therefore, the Tribunal's conclusions on the suppressed production of chhat and mapari bidis were based on material evidence, and the additions under these heads were justified. However, the assessee is entitled to credit for the sale proceeds of chhat bidis disclosed in its books of account.Conclusion:Question No. 2 was answered as follows:- The Tribunal's conclusion directing the addition of Rs. 1 lakh for the excess consumption of bidi leaves was erroneous in law.- The additions on account of the estimated value of the suppressed production of chhat and mapari bidis were in accordance with law, with the assessee entitled to credit for the sale proceeds of chhat bidis disclosed in its books of account. There was no order as to costs.