Tribunal grants relief in appeal on consignment sales recording and excessive driage claim

The Tribunal partially allowed the appeal in a case involving omission to record consignment sales and excessive driage claim. Regarding consignment sales, the Tribunal approved the appellant's accounting method of recording sales upon receipt of sale pattikas, allowing a 50% margin for delayed receipts and excluding certain sales. On the excessive driage claim, the Tribunal estimated allowable driage at 40% of the disputed quantity, providing partial relief to the appellant. The Tribunal directed the ITO to recast the trading account and adjust closing stock accordingly.

---

---

Issues Involved:
1. Omission to record consignment sales.
2. Excessive driage claim.

Detailed Analysis:

1. Omission to Record Consignment Sales:

The appellant, a firm dealing in arecanut and other products, appealed against the addition of Rs. 30,40,641 on the ground of omission to record consignment sales for the assessment year 1987-88. The Asstt. CIT noticed that the appellant had not accounted for all the sales effected by the consignees during the accounting year ending on 31st March, 1987. The appellant explained that the sale pattikas were received only during the accounting year 1987-88 and thus entered in their accounts for that year. The Asstt. CIT rejected this explanation, stating that the appellant followed a mercantile system of accounting and should have recorded the transactions within the accounting period. The CIT(A) upheld this view, citing the Supreme Court's decision in CIT vs. British Paints India Ltd., which allows for a different system if true profit cannot be ascertained.

The appellant argued that their method of accounting, which records consignment sales upon receipt of sale pattikas, is an accepted practice and had been consistently followed and accepted by the Revenue in previous years. They cited Batliboi on Accounting and other precedents to support their system. The Tribunal found that the appellant's system of accounting for consignment sales upon receipt of sale pattikas is an approved practice, not strictly mercantile but a mixed system. The Tribunal noted that there was no evidence that the sale pattikas were received during the accounting year, and the affidavits provided by the appellant supported their claim of delayed receipt.

The Tribunal concluded that instead of including all sales less expenditure as net sales for the year, a margin of 50% should be allowed for any delay in the receipt of sale pattikas. The correct figure of sales should be verified, and the trading account should be recast accordingly. The sales effected by M/s Mohd. Ibrahim & Co. should be excluded for the year ending on 31st March, 1987, as the sale pattikas were received only after the accounting year.

2. Excessive Driage Claim:

The appellant also appealed against the addition of Rs. 1,15,453 on account of excessive driage. The Asstt. CIT found the driage claimed at 669.01 quintals on a total purchase of 12579.67.400 quintals to be high and made an addition for 85 quintals recorded as driage on 1st April, 1986. The appellant contended that this was a clerical mistake and the overall driage percentage was within reasonable limits. The CIT(A) did not accept this explanation and confirmed the addition.

The Tribunal reviewed the arecanut stock register and noted that the shortage of 85 quintals appeared high even if the stock position in May 1986 was considered. However, considering the overall driage percentage was within reasonable limits, the Tribunal estimated the allowable driage at 40% of 85 quintals, granting partial relief to the appellant.

Conclusion:
The Tribunal partly allowed the appeal, directing the ITO to recast the trading account considering a 50% margin for delayed receipt of sale pattikas and adjusting the closing stock accordingly. Additionally, the Tribunal granted partial relief on the driage claim, estimating the allowable driage at 40% of 85 quintals.

---