M/S Kanwal Rice Mills Kotkapura v. The Commissioner Of Income Tax, Patiala

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITR No. 165 of 1999 (O&M)Date of decision: October 27, 2009 M/s Kanwal Rice Mills Kotkapura ...Appellant Versus The Commissioner of Income Tax, Patiala ...Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE GURDEV SINGH Present: None for the assessee.Ms. Savita Saxena, Advocate, for the revenue. ORDER 1.The Income Tax Appellate Tribunal, Amritsar, has referred thefollowing question of law for opinion of this Court, at the instance of theassessee, arising out of its order dated 29.7.1998 in ITA No. 163 (ASR)/1992 for the assessment year 1990-91:- “Whether, on the facts and circumstances of the case, low yieldof finished goods or unexplained high shortage/wastage is avalid ground for invoking Section 145 and making suitableestimate of income on account of low yield and unexplainedshortage ?” 2.The assessee derived income from rice mill. The assesseeproduced the books of account, wherein abnormal low yield of rice from ITR No. 165 of 1999 paddy was depicted. The Assessing Officer rejected the books of accountand made assessment on the basis of the estimate of yield of rice at 65.66%of paddy milled. The CIT (A) as well as the Tribunal upheld the assessment.It was observed that mere maintenance of books of account was not enoughif the income derived has not been correctly reflected. Reliance was placedon the judgment of Hon'ble Supreme Court in the case of ChhabildasTribhuvandas Shah and others Versus C.I.T. 59-ITR-733andS.N.Namasiyayam Chettiar Versus C.I.T. 38-ITR 579. The relevantobservations of the Tribunal are as under:- “The yield becomes also relevant for arriving at correct profitbecause one has to accept whether there is possibility ofcreating the sale outside the books of accounts by tamperingwith the yield of finished goods out of manufacturing processfrom raw-material. One may maintain stock register in mostperfect manner at the same time it is easy to tamper with theyield from raw-material used in the manufacturing process. Ofcourse, there has to be a scientific base for arriving at morerational and scientific yield. Often, it has been observed thatthis rationale is not being followed by the authorities below.We are of the opinion that it is the duty of the department to beequipped with a data is information regarding yield of finishedgoods from the raw-material and the data should be analyzed byan expert in the line which is under process of manufacturing.It should not be left to the persons who are neither expert norhave any knowledge in that field. The A.O. is within his rightto make an investigation as well as inquiry if the end result offinished goods and bye-products are not in accordance with thenormal conditions prevailing in a particular trade. It is for theappellant to produce valid, authentic and documented evidenceto justify the reasons for deviation of the end results in themanufacturing process. In case the explanation submitted bythe appellant is not satisfactory or is devoid of documentary and other evidence, the AO should support his finding by anopinion or the report of an expert. Under these circumstances,the A.O. can make a specific addition evaluating theunexplained portion of low yield and excess wastage andshortage. In case, he is also rejecting trading accounts results byapplication of G.P. rate such additions should be taken part ofthe trading addition on account of application of G.P. rate ornet profit rate. Keeping in view the above discussion, we are ofthe opinion that the authorities below were justified in invokingsection 145 (1) of the I.T. Act.” and other evidence, the AO should support his finding by anopinion or the report of an expert. Under these circumstances,the A.O. can make a specific addition evaluating theunexplained portion of low yield and excess wastage andshortage. In case, he is also rejecting trading accounts results byapplication of G.P. rate such additions should be taken part ofthe trading addition on account of application of G.P. rate ornet profit rate. Keeping in view the above discussion, we are ofthe opinion that the authorities below were justified in invokingsection 145 (1) of the I.T. Act.” 3.It cannot be disputed that where entries in the books of accountare absurd and totally unacceptable, mere fact that books of accounts havebeen maintained is not enough to accept their correctness. In the presentcase, there is valid reason given by all the authorities for not accepting thebooks of account. Thus, in the facts and circumstances of the case, rejectionof books of account was justified. The question referred has to be answeredagainst the assessee and in favour of the revenue.4.Reference is disposed of accordingly. (ADARSH KUMAR GOEL) JUDGE October 27, 2009 prem (GURDEV SINGH ) JUDGE Note:- Whether this case is to be referred to the Reporter .....Yes/No