Allahabad High Court
Commissioner Of Income-Tax vs Kashi Nath Chandiwala on 14 December, 2004
Equivalent citations: [2006]280ITR318(ALL)
Bench: R.K. Agrawal, Prakash Krishna
JUDGMENT
1. The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion to this Court :
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition made by the Commissioner of Income-tax (Appeals) by exercising his powers of enhancement under Section 251 of the Income-tax Act, 1961?
2. Briefly stated the facts giving rise to the present reference are as follows :
The present reference relates to the assessment year 1983-84. The respondent is a firm and derives income from sale of silver ornaments and silver bullion. It had filed the return of income of Rs. 93,960. The Assessing Officer scrutinized the trading account, which disclosed sales of Rs. 27,11,614 with a gross profit of Rs. 2,53,842, which worked out to 9.36 per cent., as against that of the last year of 10.6 per cent, on sales of Rs. 29,83,638. The Income-tax Officer noticed that both the sales and the rate of gross profit had gone down and required the respondent-assessee to explain it. The respondent-assessee explained that the purchase of silver bullion was less but the sale of ornaments had increased. The Assessing Officer considering the fact that the purchases and sales were supported by vouchers and quantitative details had also been maintained, accepted the trading results disclosed by the assessee. He, however, noticed that the melting loss in melting old ornaments and converting them into bullion was more this year being 18.80 per cent, against that of the last year at 17.11 per cent. Though the assessee furnished some details for this, yet no proper accounts were kept for this purpose, the Assessing Officer concluded that some addition was called for on this account. Accordingly, he made an ad hoc addition of Rs. 3,000 to the income disclosed by the respondent-assessee.
3. Feeling aggrieved, the respondent-assessee preferred an appeal before the Commissioner of Income-tax (Appeals) on the addition of Rs. 3,000. It was pleaded before him that there was no hard and fast rule to determine the extent of metal alloy and as the alloy this year was more, the extent of wastage in making of ornaments was quite reasonable. It was also mentioned that the margin of profit had fallen marginally only, which was normal in this line of business.
4. While considering the above submissions, the Commissioner of Income-tax (Appeals) called for further details to verify the reasons for fall in gross profit rates, as he felt that in the face of increasing trend in price of gold, the decline in gross profit rate was abnormal. His scrutiny of the data produced revealed that the valuation of the closing stock had not properly been made, and, that though the assessee had purchased substantial quantity of old jewellery and got it melted and got new jewellery made out of that which was sold the cost of old jewellery was none the less included in the closing stock as the value of new jewellery which according to the learned Commissioner of Income-tax (Appeals) resulted in a gross under valuation of closing stock and was not justified. He, therefore, issued a notice of enhancement under Section 251(2) of the Act to the respondent.
5. The respondent submitted his explanation raising various objections. Amongst other things, it was urged that the assessee did not maintain any detailed itemwise account of the jewellery and so it was not possible to indicate the extent of silver ornaments in the closing stock being old and brought forward from earlier years, got manufactured during the year and old ornaments constituting the closing stock, and that only the total weight of the silver content had been noted for purposes of working out the value of the closing stock. It was also urged that the trading results should not be disturbed as in any case, it would only mean that the opening stock of the next year will be disturbed and there would not be any gain to the Revenue in the long run.
6. The Commissioner of Income-tax (Appeals), in his detailed order, dealt with the different aspects of the matter and enhanced the total income by Rs. 93,626. Feeling aggrieved the respondent preferred appeal before the Tribunal. The Tribunal has accepted the contention of the respondent that as the trading results have not been disturbed by the Income-tax Officer, the Commissioner of Income-tax (Appeals) could not have made any enhancement by disturbing the trading results as it was not a subject-matter of appeal.
7. We have heard Sri A. N. Mahajan, learned standing counsel for the Revenue and nobody has appeared on behalf of the respondent-assessee. Learned counsel for the Revenue submitted that under the Explanation to Section 251 of the Act, the appellate authority is empowered to consider and decide any matter arising out of the proceedings in which the order appealed against was passed notwithstanding the fact that such matter was not raised before him by the appellant and therefore, even though the trading results were not the subject-matter of the appeal before the Commissioner of Income-tax (Appeals), he was justified in going into the trading results and substituting it by his own findings. Shri Mahajan has relied upon a decision of the apex court in the case of CIT v. Nirbheram Daluram wherein the apex court has held that the Appellate Assistant Commissioner is entitled to direct additions in respect of the items of income not considered by the Income-tax Officer. The apex court has followed its earlier decision in the case of jute Corporation of India Ltd. v. CIT and has held that the power of the Appellate Assistant Commissioner is coterminous with that of the Income-tax Officer and he can do what the Income-tax Officer can do and also direct him to do what he has failed to do.
8. In view of the foregoing discussion, we are of the considered opinion that the Tribunal was not justified in holding that the Commissioner of Income-tax (Appeals) had no power of enhancement in respect of an issue which was not the subject-matter of the appeal.
9. Accordingly, we answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee. However, there shall be no order as to costs.