Gujarat High Court
Natwarlal And Co. vs Commissioner Of Income-Tax, Bombay on 4 December, 1962
JUDGMENT K.T. Desai, C.J.
1. This is a reference under section 66(2) of the Indian Income-tax Act, 1922. The assessee in this case is B. Natwarlal and Co. Dhoribhai Lallubhai Patel is the sole proprietor of B. Natwarlal and Co. The assessment year with which we are concerned is the year 1953-54, the relevant accounting year being Samvat Year 2008, i.e., the period commencing from 31st October, 1951, to 18th October, 1952. The assessee has been assessed in the status of an individual on the profits which accrued to him in his business carried on in the name of B. Natwarlal and Co. in tobacco. The business consisted in making purchases of raw tobacco from local agriculturists and the sale thereof after subjecting the same to certain processes such as curing, etc. By an agreement of partnership dated 30th October, 1952, entered into between Dhoribhai Lallubhai Patel and his five sons, it was agreed that the aforesaid business of B. Natwarlal and Co. and other business carried on by his sons should be amalgamated so that all the said businesses could be carried on in partnership, from Kartik Sud 1st, Samvat Year 2009, i.e., 19th October, 1952. Clause (1) of the said partnership deed provides that a new firm has been constituted on Diwali day of 1952, i.e., 18th October, 1952, and that it had succeeded to all the assets and liabilities of the various running businesses referred to in the said deed of partnership and that all the said businesses would from Kartik Sud 1st, Samvat Year 2009, i.e., 19th October, 1952, be the businesses of the partnership. A reference to this partnership is necessary in view of the fact that all the stock of the assessee was taken over by the newly constituted firm of Messrs. Purshottamdas Dhoribhai and Co. It was found that the quantity of tobacco patti shown as the opening stock for Samvat Year 2008, i.e., the stock which existed on Kartik Sud 1st, Samvat Year 2008, i.e., 31St October, 1951, together with the purchases made during the accounting year, Samvat Year 2008, exceeded the quantity shown as closing stock by 273 maunds and 26 seers. The Income-tax Officer valued the shortage at the average selling rate of Rs. 137 per maund and made an addition of Rs. 37,500 to "the trading results". When the matter came up before the Appellate Assistant Commissioner it was found that the quantity of 273 maunds 26 seers referred to above could be split into two items : one, an item of 232 maunds 18 seers, hereinafter for brevity's sake referred to as item (a), and an item of 41 maunds 8 seers, hereinafter for brevity's sake referred to as item (b). As regards item (a), 232 maunds 18 seers arose by reason of the fact that that quantity of tobacco had been sold during the Samvat year 2007, but delivery of that quantity of tobacco was not given during Samvat year 2007, but was given during Samvat year 2007, but was given during Samvat year 2008. As regards item (b), it was found that on 30th November, 1951, when the excise authorities checked the goods lying in the warehouse of the assessee, a shortage of 41 maunds 8 seers was discovered. It was urged before us by Mr. Thakar, learned advocate for the assessee, that this shortage occurred due to evaporation and processing of goods. The Tribunal in its order dated 6th May, 1958, has stated in connection with item (b) as under :
"According to the certificate given by the central excise authorities the stock of tobacco on January 30, 1951, i.e., at the end of Samvat year 2007, was 2,269 maunds 8 seers. This is the same figure as taken by the Income-tax Officer in paragraph 19 of his order in arriving at the discrepancy in the stock position. This deficit could, therefore, only have occurred before October 30, 1951, i.e., Samvat year 2007, not in the relevant year of account but in the prior year. The Appellate Assistant Commissioner, therefore, held that the closing stock of Samvat year 2007 was short by this figure of 41 maunds 8 seers and hence it should also have been deleted from the opening stock of Samvat year 2008."
2. In the statement of the case the Tribunal has observed that the case proceeded before the Tribunal on the footing "that the deficit of 273 maunds 26 seers was attributable to the opening stock shown in Samvat year 2008." The Income-tax Officer had added a sum of Rs. 37,500 to the profits of the assessee in connection with shortage of 273 maunds 26 seers on the footing of the average selling rate of Rs. 137 per maund. This sum of Rs. 37,500 was reduced to Rs. 33,000 by the Appellate Assistant Commissioner who took the rate of Rs. 121 per maund instead of Rs. 137 per maund. Out of this sum of Rs. 33,000, Rs. 28,025 was attributable to quantity (a) and the balance of Rs. 4,975 was attributable to quantity (b). When the matter was brought before the Tribunal, the assessee asked the Tribunal to direct the Income-tax Officer to reopen the assessment made by him for the earlier assessment year 1952-53, i.e., for the accounting Samvat year 2007, on the ground that the closing stock shown in the earlier accounting year was shown at a larger figure than what it really ought to have been. In dealing with this argument, the Tribunal has observed as follows :
"As already observed, without full data and material, no such direction can be given. We have, however, no doubt that the department will look into the matter and if the same amount as alleged by the assessee has been taxed in the earlier year, it will grant the necessary relief. We agree with the Appellate Assistant Commissioner that so far as the relevant year of assessment is concerned, the shortage of 41 maunds 28 seers remained unexplained. This addition on that account will form part of the closing shortage of 273 maunds 26 seers and has, therefore, rightly been added." On the aforesaid facts there are two questions which have come up before us for decision :
"(1) Whether on the facts and circumstances of the case the Tribunal was right in refusing to give a direction to the Income-tax Officer to reduce the total income assessed in 1952-53 for Samvat year 2007 by the amount of the value of 232 maunds 18 seers, viz., 28,025 ? and (2) Was the Tribunal right in holding that the actual loss on account of shortage of 41 maunds 8 seers worth Rs. 4,975 occurred in Samvat year 2007 ?"
3. The Tribunal was concerned with the assessment for the assessment year 1953-54, i.e., for the accounting Samvat year 2008. The assessment for the assessment year 1952-53, i.e., for the accounting Samvat year 2007, was not before the Tribunal. The Tribunal was asked to give a direction in respect of the assessment of the assessee for a year in respect whereof the matter was not pending or brought before the Tribunal. Mr. Thakar placed reliance on the provisions contained in section 33(4) of the Indian Income-tax Act, 1922. That section runs as under :
"33. (4) The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner."
4. The words "pass such orders thereon" refer to the order that may be passed in the appeal. The Tribunal cannot be required to give directions in respect of a matter which does not constitute the subject-matter of the appeal. What the Tribunal in effect was asked to do was to give directions in respect of a matter pertaining to an earlier assessment year and to direct the Income-tax Officer to take action in respect of the completed assessment for the previous assessment year. This the Tribunal would have no jurisdiction to do and the Tribunal was justified in not acceding to the request of the assessee in this connection. Our answer to question No. 1 is in the affirmative.
5. The next question relates to the shortage of 41 maunds 8 seers and the question which we have to consider is the year in which such shortage occurred. No doubt the shortage was discovered by the excise authorities on 30th November, 1951. The matter proceeded before the Tribunal on the footing that this shortage "was attributable to the opening stock shown in Samvat year 2008." In view of the fact that the assessee proceeded before the Tribunal on the footing that this shortage represented the shortage in the opening stock shown in Samvat year 2008, the Tribunal was entitled to consider that the actual loss in connection with this shortage occurred in the preceding year, namely, Samvat year 2007. No evidence of any sort has been led to show that this loss or any part thereof occurred between the commencement of Samvat year 2008, i.e., 31st October, 1951, and 30th November, 1951, when this shortage was discovered by the excise authorities. Under the circumstances of the case the Tribunal was justified in holding that this loss on account of shortage of 41 maunds 8 seers occurred in Samvat year 2007. Our answer to question No. 2 is in the affirmative.
6. There is one more question which has been referred to us. The further facts relevant for the purpose of answering that question are as under.
7. For Samvat year 2008 the assessee had disclosed a closing stock of 3,003 maunds of tobacco. The assessee had valued the same at the rate of Rs. 120 per maund, the amount so calculated being Rs. 3,62,830. When the assessee was called upon to explain the basis on which valuation was made at the said rate, the assessee stated that the rate adopted was the market rate prevailing at the end of Samvat year 2008. In support thereof he produced a letter dated 4th October, 1952, from one Tulsidas Gordhanbhai of Delhi. In that letter Tulsidas Gordhanbhai states, inter alia, as under :
"Received your letter and sample of goods. Goods are approved but the rates are very high. We are bargaining with you for the first time and so we are prepared to purchase the goods at the rate of Rs. 110 to Rs. 115 per maund. If you are willing to settle the bargain intimate us immediately......"
8. The assessee was called upon to produce a copy of the letter which is referred to by Tulsidas Gordhanbhai, but the same was not produced. No evidence was led as regards the sample of goods which had been sent along with the letter addressed by the assessee to Tulsidas Gordhanbhai. The assessee had valued the entire closing stock at the rate of Rs. 120 per maund even though the stock on hand were "at different stages of processing such as raw tobacco, dust, patti (leaves) and ravo." The Income-tax Officer found that there was great variation in the selling rates. On this material the Income-tax Officer came to the conclusion that the assessee had failed to prove that the closing stock was valued at the market rate prevailing on the last day of Samvat year 2008. He valued the different kinds of tobacco on hand at different selling rates and arrived at the value of the closing stock of 3,003 maunds and 32 seers of tobacco at Rs. 4,02,390 against the valuation of Rs. 3,62,830 made by the assessee. He made an addition of Rs. 39,500 to "the trading results of the tobacco trading account." When the matter was carried further before the Appellate Assistant Commissioner, he gave an opportunity to the assessee to prove that the valuation made by the assessee at the rate of Rs. 120 per maund was in accordance with the market rate prevailing at the end of Samvat year 2008. The assessee by his letter dated 28th June, 1957, pointed out that the assessee had agreed to transfer the stock of tobacco to the firm of Messrs. Purshottamdas Dhoribhai and Co. at the rate of Rs. 120 per maund and gave an analysis showing how the valuation of various lots of goods was arrived at. The Appellate Assistant Commissioner was not satisfied with the answer given by the assessee. Apart from the letter written by Tulsidas Gordhanbhai there was no evidence led by the assessee as regards the market value of those goods. The Income-tax Officer has, in arriving at the valuation of these goods, looked at the various sales of various lots which has been effected by the assessee, and from the order of the Income-tax Officer it appears that the rates taken by him were the lowest rates at which the sales had been effected. In the absence of any evidence led by the assessee as regards the value of the closing stock of the goods, the Income-tax Officer did the best that he could under the circumstances having regard to the sales which had been effected by the assessee. In view of the circumstances of the case it is not possible for us to say that there was no evidence on which the taxing authorities or the Tribunal arrived at the market value of the closing stock of these goods. The question that has been referred to us in this connection is the following :
"3. Was there any material before the taxing authorities and the Tribunal to arrive at the conclusion that the closing stock of 3,003 maunds 32 seers was undervalued by Rs. 39,500."
The question requires to be re-framed and we reframe the same as under :
"3. Was there any evidence before the Tribunal to arrive at the conclusion that the closing stock of 3,003 maunds 32 seers was undervalued by Rs. 39,500 ?"
9. Our answer to the question as reframed is in the affirmative. The assessee will pay to the Commissioner the costs of the reference.