Punjab-Haryana High Court
Sangrur Vanaspati Mills Ltd. vs Commissioner Of Income-Tax on 7 July, 2005
Equivalent citations: (2007)211CTR(P&H)439, [2006]283ITR267(P&H)
Author: D.K. Jain
Bench: D.K. Jain, Hemant Gupta
JUDGMENT D.K. Jain, C.J.
C. M. Nos. 11566 and 11567 of 2004 :
1. For the reasons stated in the applications, the delay in filing the appeals is condoned.
2. The applications stand disposed of.
I. T. A. Nos. 187 and 188 of 2004 :
3. These two appeals under Section 260A of the Income-tax Act, 1961 (for short, "the Act") by the assessee, are directed against order dated July 11, 2003, passed by the Income-tax Appellate Tribunal, Chandigarh Bench "B", Chandigarh (for short, "the Tribunal") in I. T. A. Nos. 396/Chandi/96 and 474/Chandi/96, pertaining to the assessment year 1992-93. According to the assessee, the said orders involve the following substantial questions of law :
(i) Whether under the facts and circumstances of the case the Tribunal was justified in law in upholding the applicability of the provisions of Section 145(2) without finding any material or evidence on record for rejection of books of account ?
(ii) Whether under the facts and circumstances of the case, the Tribunal's concurrence on the rejection of books of account with the Commissioner of Income-tax (Appeals) is without any basis and hence making estimation is perverse ?
(iii) Whether under the facts and circumstances of the case, the Tribunal is justified in upholding the addition of Rs. 15,50,000 on the basis of yield of the earlier year without appreciating that no material or evidence have been found to come to a conclusion for making such estimation and the basis as per yield for the assessment year 1991-92 is not justifiable ?
(iv) Whether under the facts and circumstances of the case where no addition on account of the assumed and presumed sales on the basis of the blank documents have been made by the Excise and Taxation Department (Sales Tax Department) and thereby no sales tax has been charged whether the Tribunal was justified in confirming the assumption of such sales on the blank documents found by the Excise and Taxation Department during search on January 23, 1993, and thereby estimating the income assuming sales to have been made outside the books by rejecting the books of account and taking yield to be the basis ?
4. Briefly stated, the material facts giving rise to the present appeals are as follows :
A survey was conducted at the business premises of the assessee on October 10, 1988, which resulted in the seizure of some incriminating documents showing unaccounted sales and other transactions. As a result thereof, the assessee declared income of Rs. 23.5 lakhs, Rs. 7.5 lakhs and Rs. 4 lakhs for the assessment years 1986-87 to 1988-89, respectively. The Assessing Officer felt that in view of the past history, the assessee had been effecting sales outside the books of account.
5. On January 23, 1993, the Central Enforcement Wing of the Excise and Taxation Department, Patiala, inspected the office premises of the assessee and seized certain documents. The same revealed unaccounted sales of vanaspati ghee amounting to Rs. 5 lakhs and soap amounting to Rs. 40,000 during the previous year, relevant to the assessment year 1992-93.
6. In the light of the past history of the assessee and in view of the excessive consumption of nickel catalyst and electricity coupled with low gross profit (GP) and low yield, the Assessing Officer came to the conclusion that the books of account maintained by the assessee were not correct and were liable to be rejected. The Assessing Officer thus rejected the book results and estimated the income by resorting to the provisions of Section 145(2) of the Act.
7. The Assessing Officer observed that the documents found during the course of survey carried out by the Enforcement Wing of the Excise and Taxation Department clearly indicated suppression of sales of vanaspati, which was reflected in the sale vouchers found, but not reflected in the regular books of account. He further observed that the documents discovered during the course of inspection, namely, 53 sale vouchers, of which original and duplicate copies were not available, perhaps used for effecting the unaccounted sales, and only one copy out of the three was retained. Since no amount was mentioned in the said copy, the Assessing Officer worked out the average sale per bill based on four bills, also seized during search indicating sale of Rs. 4,99,386, which were not entered in the books of account. By taking the average sale per bill and multiplying the same by 53, the Assessing Officer worked out the total unaccounted sale of vanaspati ghee at Rs. 66,16,865. After including the said amount in the declared sales, the yield percentage worked out to 94.91 per cent., which was comparable with the yield for the earlier assessment years. Besides the said addition, the Assessing Officer also noticed that the assessee had an installed capacity of oxygen gas of 50 metric tonnes per day. Observing that being a precious and expensive item, being sold at Rs. 54 per cylinder, the assessee would not like to waste it, he estimated the ratio of production of oxygen gas vis-a-vis ghee per metric ton at 1 : 3 and thus, came to the conclusion that the assessee had suppressed sales of oxygen gas amounting to Rs. 6,73,326.
8. Aggrieved, the assessee challenged the assessment order in appeal before the Commissioner of Income-tax (Appeals) (for short, "the Commissioner (Appeals)"). It was pleaded before the Commissioner (Appeals) that since no defects had been pointed out by the Assessing Officer in the books of account maintained by the assessee and all purchases and sales were fully vouched and in the books of account, there was no occasion for the Assessing Officer to invoke Section 145(2) of the Act. The assessee also adduced evidence before the Commissioner (Appeals) in support of its stand that consumption of nickel catalyst varied from one kilogram to 1.5 kilograms per metric ton depending upon the melting point of vanaspati and temperature condition, pressure and quality of nickel catalyst. Inter alia, observing that the documents found during the course of inspection carried out by the Central Enforcement Wing of the Excise and Taxation Department, Patiala, which had revealed sales outside the books of account, the Commissioner (Appeals) upheld the rejection of books of account. Noticing that nickel, being an excisable commodity, the assessee had maintained complete record as prescribed by the Excise Department and the assessee had accounted for spent catalyst, the Commissioner (Appeals) deleted the addition of Rs. 7,59,259, made on account of consumption of nickel catalyst. As regards the addition on account of low yield, the Commissioner (Appeals) observed that for the assessment year 1991-92, the yield of 93.13 per cent. per metric ton had been accepted by him and, therefore, the yield for this assessment year should also be taken at 93.13 per cent. In this manner, the Commissioner (Appeals) reduced the addition from Rs. 66,16,865 to Rs. 15,50,000. The Commissioner (Appeals) also deleted the addition made by the Assessing Officer on account of suppression of sales of oxygen gas.
9. Being dissatisfied with the order, the assessee as well as the Revenue took the matter in further appeals to the Tribunal. Taking note of the inspection carried out by the Excise and Taxation Department, the Tribunal came to the conclusion that the books of account were rightly rejected by the Assessing Officer. However, on the question of estimation of income after rejection of books of account, the Tribunal observed that the basis adopted by the Assessing Officer, namely, averaging of sales on the basis of four bills, which contained specific details of the unaccounted sales aggregating to Rs. 4,99,386, may not be a correct estimation of income because no such specific details were found recorded in the remaining vouchers. Nevertheless, the Tribunal felt that adoption of trading results for the assessment year 1991-92 by the Commissioner (Appeals) was fair and reasonable. Thus, the Tribunal upheld the view taken by the Commissioner (Appeals). Hence, the present appeals.
10. We have heard Mr. Pankaj Jain, learned Counsel appearing on behalf of the assessee, and Dr. N.L. Sharda, learned Counsel appearing on behalf of the Revenue.
11. Assailing the findings recorded by the Tribunal as perverse, Mr. Jain has vehemently urged that the Tribunal committed a serious error in law by adopting the four bills, on which the sale was recorded, as the foundation for sustaining the addition on the basis of a single copy of 53 blank vouchers, particularly when no action was taken by the Excise and Taxation Department for any sale outside the books of account on the basis of the said bills. Learned Counsel has also submitted that there is no provision in the Act for drawing a presumption about the income of an assessee. In support of the proposition that there was no reasonable nexus between the 53 bills and the sales, allegedly concealed by the assessee, and, therefore, the estimation of the sales by the Commissioner (Appeals) and upheld by the Tribunal could not be sustained, learned Counsel has placed reliance on a decision of the Supreme Court in State of Kerala v. C. Velukutty . Reliance is also placed on another decision of the Supreme Court in State of West Bengal v. A.M. Khalil [2000] 4 SCC 594 to contend that there is no specific provision in the Act for drawing a presumption about the suppression of sales. In a nutshell, the plea is that on the facts of the present case, there was no evidence on record to show that the assessee had suppressed its sales and therefore, a question of law does arise from the impugned orders.
12. We are unable to agree with learned Counsel. It needs little emphasis that the scope of appeal under the newly inserted Section 260A of the Act is restricted to adjudication on a substantial question of law and not on a question of law. Though the expression "substantial question of law" is not defined in the Act or any other statute, where a similar expression appears, it has acquired a definite connotation through a catena of judicial pronouncements. Recently in Santosh Hazari v. Purushottam Tiwari dealing with an analogous provision contained in Section 100 of the Code of Civil Procedure, their Lordships of the Supreme Court have reiterated the tests laid down by the Constitution Bench in Sir Chunilal V. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co. Ltd. , for determining whether a question raised in a case is a "substantial question of law" or not. It has been said that usually the proper tests would be, whether : (i) it is of general public importance ; or (ii) it directly or substantially affects the rights of the parties ; or (iii) it is an open question in the sense that it is not finally settled by the Supreme Court; or (iv) is not free from difficulty; and (v) it calls for discussion for alternative views.
13. Having examined the facts of the present case on the touch-stone of the aforenoted broad principles, to be kept in view while determining whether the questions proposed by the assessee are substantial questions of law or not, we are of the view that none of the issues raised can be categorised as a substantial question of law, requiring consideration by this Court. It is well-settled that it is not possible to catalogue various types of defects in the account books of an assessee, which may render rejection of books of account on the ground that the accounts are not correct or the correct income cannot be deduced therefrom to invite the applicability of Section 145(2) of the Act. It is also true that the absence of the original copies of 53 invoices in a given situation may not per se lead to an inference that the accounts maintained by the assessee were false or incomplete. Nevertheless, the absence of original invoices coupled with the fact that the excise authorities did find some incriminating material during inspection, namely, four bills, which have not been disputed by the assessee, did lead to an inference that the accounts disclosed did not comprehend all the transactions and the assessee's projected trading results required deeper scrutiny. We are of the view that in the light of all this material, the authorities below were justified in rejecting the books of account of the assessee under Section 145(2) of the Act and in making the assessment in the manner contemplated in these provisions.
14. As regards the estimation of total income of the assessee by best judgment, it is again well settled that though there is always an element of guess work in a best judgment at the same time, it cannot be a wild one. In State of Kerala v. C. Velukutty , while explaining the scope of powers of the assessing authority to assess a dealer to the "best of his assessment" under the Travancore-Cochin General Sales Tax Act, their Lordships of the Supreme Court, inter alia, observed that the limits of the power are implicit in the expression "best of his assessment". The judgment is a faculty to decide matters with wisdom truly and legally. The judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. The best judgment assessment must have some reasonable nexus to the available material and circumstances of each case. If the estimate made by the Assessing Officer is a bona fide estimate and is based on rational basis, it cannot be disturbed even when the court may think that it is not the most appropriate basis.
15. In the instant case, as noted above, the basis adopted by the Commissioner (Appeals) in respect of the assessment year 1991-92, namely, the yield of vanaspati, has been found to be reasonable by the Tribunal. A yield shown by the assessee for the assessment year 1991-92 at 91.13 per cent. was accepted and therefore adoption of the same basis for estimating the income for the present assessment year, in our view, cannot be said to be arbitrary or perverse, as is sought to be pleaded by learned Counsel for the assessee. We are of the opinion that on the findings recorded by the Commissioner (Appeals) and upheld by the Tribunal, no question of law, much less a substantial question of law arises for our consideration.
16. Consequently, we decline to entertain the appeals. Dismissed.