Income Tax Appellate Tribunal - Chandigarh
Income-Tax Officer vs Mohan Lal Thaper And Bros. on 23 August, 1993
Equivalent citations: [1993]47ITD13(CHD)
ORDER
S.S. Mehra, Judicial Member
1. The Revenue, in the present appeal, have raised, inter alia, the following ground :
"On the facts and in the circumstances of the case, the learned Appellate Assistant Commissioner has erred in deleting the addition of Rs. 1,61,310 made by the assessing authority on account of sale of 'chilka'."
2. By status, the assesses in this case is a registered firm engaged in the business of running a rice mill and commission agency. Its accounts were maintained on the mercantile basis and the accounting period was the year ending March 31, 1982. Return was filed on August 30, 1982, declaring a loss of Rs. 1,24,481. It was noticed by the learned Income-tax Officer during the assessment proceedings that the assessee had not shown any sale of chilka, i.e., rice husk, It was also noted that in other cases of similar nature, such sales were shown. Thus, an addition of Rs. 1,61,310 was made, while framing the assessment, with the following observations :
"During the course of examination of accounts, it was noticed that the assessee did not show any sale of chilka while in another case of the district, sale of chilka was shown at Rs. 92,878 and this was credited to his account. In the case of the assessee, the assessee and his counsel have pleaded in response to the notice under Section 143(3) issued on January 18, 1985, that the chilka was burnt in the drier in its own factory and partly it was got removed from the premises of the factory rather on the request of parties. It has also been argued by them that husk had no market and difficulty was experienced in getting the same removed from the factory premises. This contention of the assessee is not tenable especially when in another case, where the assessee has similar business, sale of chilka weighing 10,246 quintals has been reflected in the trading account. The total chilka in the case of the assessee comes to 23,044 quintals. After giving benefit of 30 per cent. used in the drier by the assessee in its own factory, the balance chilka sold in the market works out to 16,131 quintals. By applying the sale rate of Rs. 10 per quintal, the sale of chilka would work out to Rs. 1,61,310. This calls for an addition of Rs. 1,61,310 in the trading result shown by the assessee."
3. The addition was contested and it was argued before the learned Appellate Assistant Commissioner that the husk or chilka had no market value and thus nothing was includible on account of sale thereof. It was also pointed out that some other mills were also not showing any sale of such material. It was contended that no addition had been made by the respective Income-tax Officers in the cases of Aggarwal Rice and General Mills and Gupta Rice Mills. Further submission before the learned Appellate Assistant Commissioner was that the assessee itself disclosed sale of chilka at Rs. 31,500 for the assessment year 1983-84, when the chilka had been actually sold. It was also pointed out that the assessee was unlikely to gain anything by not showing the sales as a loss return had been filed and thus no tax liability was to be there. It was pointed out that the learned Income-tax Officer was not justified in making any addition for the alleged sale of chilka during the year under appeal. The learned Appellate Assistant Commissioner, after being convinced, deleted the entire addition, with the following observations :
"4. Having carefully considered the submissions made by the learned AR, it is held that no addition on account of the alleged sale of chilka is called for in this case for the year under consideration. I have come to this opinion because the case relied upon by the Income-tax Officer cannot be compared with that of the appellant-firm for the reasons discussed above. Secondly, although there is one case in which the sale of chilka had been shown, there are three or four cases referred to by learned counsel in which there had been no sale of chilka but still no addition had been made by the respective Income-tax Officers. Hence, there was no justification for any addition in this case for the alleged sale of chilka and hence the entire addition of Rs. 1,61,310 is deleted."
4. The present ground taken by the Revenue before us is against the said decision. The learned Departmental Representative, Mr. M.S. Bhatia, supported the assessment order on the point and contended further that there was surplus chilka after self-consumption and that it had value and marketability and thus the addition was correctly made was wrongly deleted.
5. On behalf of the assessee, the finding under challenge was supported and it was argued further that earlier the husk had no market value and that only after the year under appeal, its value was discovered. It was further contended that, for the assessment year under consideration, since there was no sale of husk, no receipt was shown and thus there was no justification for making any addition on account of sale of husk. It was argued that, for the assessment year 1983-84, there was sale of such husk and the receipt was accounted for in the books and so also for the assessment year 1984-85. According to learned counsel, Shri Mohan Lal, since there was no sale for the year under consideration, the receipt was hot rightly shown. Mention was made at pages 3 and 4 of the paper book for the proposition that, for the assessment year 1981-82, no such addition was made and so also pages 5 and 6 for the same purpose. A copy of the assessment order at pages 8 and 9 was pointed out to say that there was no sale of such commodity and so also pages 10 and 13, of the paper book. It was also pointed out that, in many cases, there was no sale of such material and that position had been accepted by the Revenue.
6. Submissions have been heard and considered. The total quantity pf chilka for the year under consideration was determined by the learned Income-tax Officer at 23,044 quintals ; 6,913 quintals was supposed to have been used by the assessee in the drier and thus the balance quantity of 16,131 quintals was considered to be available with the assessee for disposal. He applied a sale rate of Rs. 10 per quintal and thus arrived at the figure of Rs. 1,01,310 and the addition of like amount was made. This is seen from a perusal of the assessment order. It is seen from a perusal of record that, for the subsequent assessment year, i.e., 1983-84, the assessee itself sold such material for Rs. 31,500, as is clear from page 3 of the order under challenge. It was also argued before us that, for the assessment year 1984-85 also, there was sale of such material which was accounted for in the books. According to the assessee, no doubt, subsequent to the year under consideration, the value of such material was recognised and for the year under consideration and earlier, such material was said to have no value or marketability. On that basis, the learned advocate on behalf of the assessee wanted us to believe that, up to the year under consideration, the commodity had no value, there was, therefore, no sale and thus no addition was required to be made. Now the point for consideration before us is whether such position taken by the assessee was legally and factually tenable or not.
7. It is seen that, for the subsequent assessment years, the commodity was sold and the receipt accounted for. It is also seen that some of the other concerns were selling such commodity in earlier years and were showing the receipt also, as the cases had been picked up by the Revenue and discussed in the assessment order. Before us, it was admitted on behalf of the assessee and fairly so that the commodity had marketability and that it was sold in subsequent years to dyeing units for drying. It was also understood that there was a lot of self-consumption. It was also understood that it could also be used as fuel and to produce fodder for poultry birds. Thus, from a combined reading of the entire material, it is absolutely safe to infer that the commodity had marketability and thus receipt thereof was natural, which is not seen to have been reflected in the assessee's account hooks. On account of that, in our view, some addition was definitely called for. The quantity was not shown to be in dispute. The learned Income-tax Officer has determined the quantity at 23,044 quintals. We take that one-third of it must have been utilised in self-use by the assessee in its drying plant. Thereafter, the balance was definitely meant for commercial disposal. The learned Income-tax Officer applied a rate of Rs. 10 per quintal. However, it was understood that in the case of some other assessee, a rate of Rs. 7 per quintal was seen to have been noted. We, thus, in the light of the preceding discussion, hold that, out of total quantity, after deducting one-third for self-consumption, the balance should be supposed to have fetched a price at Rs. 7 per quintal. The addition to this extent, in our view, should have been confirmed by the learned Appellate Assistant Commissioner in the present case. Since he did not do so, his finding is modified to this extent. The learned Income-tax Officer, while working out the addition, will keep in view our above observations.
8. The paper book has been perused.
9. In the result, the appeal is allowed in part.
S.K. Chander, Accountant Member
10. I have very carefully gone through the order proposed by my learned brother--Judicial Member--put up to me on July 17, 1989, on my return from the Amritsar tour. I am, however, not in a position to subscribe to the various observations made by him in the order as well as the conclusions drawn by him. Hence, this dissenting order.
11. It would be first necessary to take note of and record findings of fact which are not in dispute and in fact have not been questioned by the Revenue.
(a) The assessee is a registered firm and "derives income from the business of running of shelter" as recorded by the Income-tax Officer in his impugned order made under Section 145(3) in March, 1985.
(b) The method of accounting followed by the assessee, and accepted by the Revenue is the mercantile system of accounting regarding the business of sheller.
(c) The Income-tax Officer has recorded in the impugned assessment order that, "the total chilka in the case of the assessee comes to 23,044" but has not recorded as to how he arrived at this figure or wherefrom this figure was taken by him.
(d) According to the Income-tax Officer "in another case of the same district, sale of chilka was shown" but he neither mentioned the name and address of that party nor even recorded other necessary details from which one could compare whether the two cases, on the facts, were in pari materia.
(e) He did not put to the assessee any material that he may have gathered that the assessee had in fact either sold or accumulated the quantum of husk (chilka) assumed by him to be lying with the assessee for sale.
(f) In the assessment order for the assessment year 1980-81 made under Section 145(3) on March 16, 1983, the Income-tax Officer did not make any addition either on account of actual sale of husk by the assessee and not shown or on account of husk lying with the assessee considered as valuable and worthy of note to be taken into the profit and loss account.
(g) Again for the assessment year 1981-82, in the order made on March 26, 1984, under Section 143(3) no addition specifically was made either on account of sale of husk or on account of valuation of any closing stock--the manner of computation of total income notwithstanding. No accumulation of husk was mentioned.
(h) On such background and facts, the Income-tax Officer proceeded to make the addition of Rs. 1,61,310 on the solitary support of "another case of the district" without disclosing or discussing the facts of that case.
12. On a perusal of the proposed order, it is, however, seen that my learned Brother has recorded that, "it was noticed by the learned Income-tax Officer during the assessment proceedings that the assessee had not shown any sale of chilka, i.e., husk. It was also noted that in other cases of similar nature, such sales were shown". Thus, apparently reference to "other cases" of "similar nature" by my learned brother as found by the Income-tax Officer is without any material because, as pointed out above, the Income-tax Officer had referred only to "another case of the district" albeit without giving necessary details. In fact, after this, my learned brother has reproduced the Income-tax Officer's observations and it becomes crystal clear therefrom that "other cases" were not referred to or relied upon by the Income tax Officer except a case whose details were not recorded. I am recording it to emphasise that, on such appreciation of facts, in my humble opinion, correct inferences and conclusions could not follow.
13. When the matter came up before the learned Appellate Assistant Commissioner in the first appeal, he got the details of the case to which the Income-tax Officer had made a reference. He also considered other cases of the area on which reliance was placed from the side of the assessee. Thereafter, he gave a finding of fact that having carefully considered the submissions of the parties, no addition on account of "alleged sale of chilka is called for in this case for the year under consideration". He also pointed out that the cases on which the Income-tax Officer had placed reliance for purposes of comparison with the case of the assessee and for making the addition could not be compared for which he gave reasons in his impugned order. Therefore, the issue is whether, when there was no evidence whatsoever of the husk being considered as valuable and as such be accounted for by everyone in the field of business activity of the assessee, it could be taken up for consideration and an addition in the manner done by the Income-tax Officer (could be made) for the assessment year 1982-83.
14. The assessee's claim is that till the assessment year 1982-83, either the husk was burnt or it was lying outside the factory premises and was taken away by other parties or were asked to be cleared. The addition made by the Income-tax Officer was on the ground that, in the other case to which he made a reference, there was some amount accounted for on account of husk. In the case of the assessee itself, in the assessment year 1983-84, a sum of Rs. 31,500 had been declared by the assessee as sale proceeds of chilka. The assessee is following the mercantile system of accounting and it is common ground that for the years prior to 1982-83 when the Income-tax Officer made the assessments after due consideration, no value of chilka or husk which was a bye-product of the business of the assessee was considered as worth taking note of by way of valuation as an addition to the total income of the assessee. The other cases also were accepted by the Income-tax Officers up to that assessment year which have been cited in the order of the Appellate Assistant Commissioner in which such husk was neither valued nor accounted for. Therefore, the claim of learned counsel for the assessee that, till the assessment year 1982-83, the value of husk had not been recognised as it is today, has to be considered along with the basis on which the addition has been made by the Income-tax Officer.
15. As stated earlier, the Income-tax Officer did not find any sale of husk not accounted for or any husk actually lying on the premises and not valued for inclusion in the profit and loss account. Thus there was an addition merely on the basis that the husk had value and that a party had shown some sale and, therefore, addition had to be made in the case of the assessee. In my opinion, this was an addition on conjecture and surmises. When the matter came up before the Appellate Assistant Commissioner, he considered all the facets of the case of the assessee and other cases and deleted the addition with good reasons. If we are to reverse his order, we should be shown by the party that wants his order to be reversed, some evidence which could call for an interference in his order. In my opinion, there is no such evidence. Therefore, no addition can be sustained by reversing the order of the Appellate Assistant Commissioner.
16. It has also to be remembered that, normally, a businessman may act with a motive to reduce the incidence of tax. In this case, for the year under appeal, it appears that it could not be the motive of the assessee, if at all it could be considered, because the return was filed on August 30, 1982. declaring a loss of Rs. 1,24,481. Thus looking at the entirety of the facts and circumstances of the case and in comparison to how the other assessees had been treated by the Revenue in the same assessment year, in the same line of business and from the same area, there is no justification for sustaining any addition in this case. I, therefore, find no reason to interfere in the order of the Appellate Assistant Commissioner who deleted the addition made on conjectures and surmises.
17. In the result, the Departmental appeal is dismissed.
ORDER OF REFERENCE TO THIRD MEMBER
18. We have a difference in opinion on the following point :
19. Whether, on the facts and in the circumstances of the case, the order of the Appellate Assistant Commissioner should be confirmed as held by the Accountant Member or a part of the addition made by the Income-tax Officer at Rs. 1,61,310 on account of assumed sale of chilka, be sustained as held by the Judicial Member ?
20. We accordingly, by virtue of the provisions contained in Section 255(4) of the Act, refer this point to the President, Income-tax Appellate Tribunal, for necessary action.
ORDER OF THIRD MEMBER Ch. G. Krishnamurthy, President
21. This is a matter where the Members of the Chandigarh Bench who heard this appeal could not agree on the following point of difference of opinion :
"Whether, on the facts and in the circumstances of the case, the order of the Appellate Assistant Commissioner should be confirmed as held by the Accountant Member or a part of the addition made by the Income-tax Officer at Rs. 1,61,310 on account of assumed sale of chilka be sustained as held by the Judicial Member ?"
22. I have perused the records, the orders passed by my learned brothers and considered the arguments addressed to me. After such careful consideration, I am of the opinion that there is no scope for sustaining any addition made by the Income-tax Officer on account of assumed sales of chilka; First of all, except an assumption based upon suspicion, there is no proof Or material to suggest that chilka was sold during the accounting year and such sales were not accounted for. The order of the Income-tax Officer would show that he had proceeded only on assumption and suspicion. The reasons given by the Income-tax Officer in support of this addition as reproduced by the learned Judicial Member in his order were as under:
"During the course of examination of accounts, it was noticed that the assessee did not show any sale of chilka while in another case of the district, sale of chilka was shown at Rs. 92,878 and this was credited to his account. In the case of the assessee, the assessee and his counsel have pleaded in response to notice under Section 143(3) issued on January 18, 1985, that the chilka was burnt in the drier in its own factory and partly it was got removed from the premises of the factory rather on the request of the parties. It has also been argued by them that husk had no market and difficulty was experienced in getting the same removed from the factory premises. This contention of the assessee is not tenable especially when in another case, where the assessee has similar business, sale of chilka weighing 10.246 quintals has been reflected in the trading account. The total chilka in the case of the assessee comes to 23,044 quintals. After giving a benefit of 30 per cent. used in the drier by the assessee in its own factory, the balance chilka sold in the market works out to 16,131 quintals. By applying the sale rate of Rs. 10 per quintal, the sale of chilka would work out to Rs. 1,61,310. This calls for an addition of Rs. 1,61,310 in the trading result shown by the assessee."
23. Urging that this addition was totally uncalled for and was made on suspicion, the assesses filed an appeal before the Appellate Assistant Commissioner who deleted the addition observing that the case relied upon by the Income-tax Officer was not comparable with that of the assessee, that there are three or four other cases in the same area, wherein there was no sale of chilka and that fact was accepted by the concerned Assessing Officers and that when the assessee sold the chilka it accounted for the sale proceeds in the books of account and that fact was proved by disclosing sales of chilka at Rs. 31,500 in the immediately succeeding assessment year 1983-84. There was also substance in the contention urged on behalf of the assessee that chilka was used more as a fuel for running the rice mill and that there were no ready buyers now and then. It was aggrieved by this deletion by the Appellate Assistant Commissioner that the appeal came before the Tribunal where the learned Members had differed as above.
24. Referring to the facts that the assessee had accounted for the sales of chilka in subsequent assessment years and some sales of chilka were also shown by other millers, the learned Judicial Member held that it was not possible to accept the contention that there was no marketability for chilka or that the chilka was not marketable. He, therefore, held that some addition was called for and directed that one-third of the quantity of chilka produced should be held to have been used as fuel and the balance must have been disposed of. He fixed the rate at Rs. 7 per quintal as against Rs. 10 per quintal adopted by the Income-tax Officer. Thus he modified the order of the Appellate Assistant Commissioner. But the learned Accountant Member held that no addition was called for at all, inasmuch as, the Income-tax Officer failed to point out even a single instance of sale of chilka outside the account books nor was any addition made in the earlier years on account of sale of husk even though the assessee had not shown any such sales. The case that the Income-tax Officer relied upon was not shown to be a comparable case inasmuch as the name and address or other necessary details were not referred to in the order. He was also of the opinion that husk in the case of a rice miller, which the assessee was, has hardly any value and in most of the cases it was used as fuel to run the boilers and very seldom the husk was sold to any outside party except again to be used as fuel. He also found that there could not be any motive for the assessee to reduce the incidence of tax by omitting to record the sales of husk if at all they were made, for, that the assessee had shown loss which was not suspected. Finally, he held that on the same set of facts and circumstances, other assessees in the same area were treated by the Revenue in a different manner by not including the sales of husk as was done in this case and there was no justification for discriminatory treatment.
25. pIt was on the basis of these facts that I found more force and substance and reasons to agree with the conclusions reached by the learned Accountant Member. Barring suspicion, there was nothing else in the assessment order justifying the addition of Rs. 1,61,310 as sales of chilka. As pointed out by the learned Accountant Member in his order, the Income-tax Officer has not been able to point out from where he had arrived at the quantity of chilka as 23,044 quintals. There was no denying the fact that the husk was never sold in the earlier years or it was used as a fuel and except for the assessment years 1983-84 and 1984-85 where some sales of chilka were made, there was no sale of husk in any of the years and that position was accepted by the Revenue. What is more, for the assessment year 1983-84, when an addition of Rs. 75,784 was made by the Income-tax Officer on similar grounds as obtaining in this assessment year, the entire addition was deleted by the Commissioner (Appeals), of course, an appeal is pending against that deletion before the Tribunal. In a case where the husk is not at all sold or capable of being sold except as fuel and where the husk was used as a fuel by the assessee, merely on the ground that some miller in the district at some corner had shown some sales cannot be a justification for making the addition in the case of the assessee also without anything more, ignoring the fact that, in the neighbourhood of the assessee in the case of other millers, no addition was made on account of such assumed sales of husk. The learned Judicial Member had opined that one-third of the husk produced could have been used as fuel and the balance could have been sold in the market at Rs. 7 per quintal. His order does not show any supporting material in support of this assumption, inferences and conclusions. He came to the conclusion that husk has got marketability. That is not a ground to suppose that sales of husk were in fact made and that the sale proceeds were not accounted for. Normally, in the case of a rice miller, the husk is stocked for the purposes of being used as a fuel. It occupies a large area. To retrieve the area occupied by the husk, a part of it might have been sold. That does not conclusively prove that the assessee sold the quantity imputed to him as sold in this accounting year. Neither the fact that the husk has marketability nor the fact that, in subsequent years, the sale was accounted for, nor the fact that some other miller had shown some sales lends support to the view by way of material that the assessee had made sales of husk in this accounting year and did not account for them. In all fairness, the Department should have considered the other three or four cases referred to by the assessee where there was no sale of husk rather than rely upon that solitary case where some sale of husk was claimed to have been shown. The conclusions drawn by the Income-tax Officer are, in my opinion, not fair and proper, the Appellate Assistant Commissioner was justified in deleting the entire addition and the learned Judicial Member is not justified in directing the sustenance of a part of the addition on the ground of assumed sales. The learned Accountant Member is therefore justified in holding that the entire addition as proposed was baseless and was rightly deleted by the Appellate Assistant Commissioner.
26. The matter will now go before the regular Bench for decision according to majority opinion.