M/S. Tarlok Singh & Brothersthrough Its v. Commissioner Of Income Tax,Jalandhar-Ii And Others

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 206 of 2011Date of decision: 20.7.2011 M/s. Tarlok Singh & Brothersthrough its partner Tarlok Singh Versus --- Appellant Commissioner of Income Tax,Jalandhar-II and others --- Respondents CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. G.R. Sethi, Advocatefor the appellant. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act,1961 (for short “the Act”) has been filed by the assessee against theorder dated 5.2.2010, passed by the Income Tax Appellate TribunalAmritsar Bench, Amritsar (in short “the Tribunal”) in ITA No. 07(ASR)2010, relating to the assessment year 2005-06. 2.The following substantial questions of law have beenclaimed for determination of this Court: “(i)Having regard to the omission of Proviso to Section 145(1) w.e.f. 1.4.1997 and on the true and correctinterpretation of the substituted provisions contained inSec. 145(3) whether under law any trading addition can(1) w.e.f. 1.4.1997 and on the true and correctinterpretation of the substituted provisions contained inSec. 145(3) whether under law any trading addition can be made under the head Khudi Phak and Husk inabsence of any explicit or implicit finding to the effect thatthe case falls within the purview of Section 145(3) of theIncome Tax Act, 1961, more so when the Hon’bleTribunal has recorded a finding that the books of accounthave not been rejected? (ii)On the facts and in the circumstances of the case andhaving regard to the sanctity of account books maintainedin the normal course of business, is there any positivematerial or evidence on record? and if so what? to upholdand sustain additions in income under head Khudi Phak(not produced as per assessee’s version) and short fall inyield of paddy husk when not a solitary sale or purchasewas found unrecorded in account books and accountbooks were undisputedly not rejected and are the findingsnot perverse?having regard to the sanctity of account books maintainedin the normal course of business, is there any positivematerial or evidence on record? and if so what? to upholdand sustain additions in income under head Khudi Phak(not produced as per assessee’s version) and short fall inyield of paddy husk when not a solitary sale or purchasewas found unrecorded in account books and accountbooks were undisputedly not rejected and are the findingsnot perverse? (iii)On the facts and in the circumstances of the case isHon’ble Tribunal correct in law in upholding additions ofRs. 2,00,313/- on account of expected yield and sale ofKhudi Phak and Rs. 2,20,840/- for alleged short fall inyield of Paddy husk when Assessing Officer had notrejected books of account and no such sale was noticedoutside the account?Hon’ble Tribunal correct in law in upholding additions ofRs. 2,00,313/- on account of expected yield and sale ofKhudi Phak and Rs. 2,20,840/- for alleged short fall inyield of Paddy husk when Assessing Officer had notrejected books of account and no such sale was noticedoutside the account? 3.The facts, in brief, necessary for adjudication as narratedin the appeal, are that the appellant-assessee firm is engaged in thebusiness of milling of paddy and production of rice and by-productson small scale. The assessing officer made trading addition of Rs.13,08,280/- under various heads vide order dated 24.12.2007. 3.The facts, in brief, necessary for adjudication as narratedin the appeal, are that the appellant-assessee firm is engaged in thebusiness of milling of paddy and production of rice and by-productson small scale. The assessing officer made trading addition of Rs.13,08,280/- under various heads vide order dated 24.12.2007. According to the appellant, it had been following a consistent methodof accounting for the past many years and during the year in questionalso, it had kept its books of account and stock registers on the samepattern as in the preceding years. According to the assessee, theassessing officer arbitrarily made the trading addition of Rs.2,61,375/- by applying a rice yield of 67% as against 65% shown byit. The assessing officer also made addition of Rs. 6,26,535/- onaccount of suppression in yield of paddy husk and of Rs. 1,27,541/-as suppression in paddy purchase for the difference in figures ofpurchase account of paddy. 4.The assessee filed appeal before the Commissioner ofIncome-tax (Appeals) {in short “the CIT(A)”}. The CIT(A), vide orderdated 30.1.2002 while deleting the addition of Rs. 2,61,375/- made inrespect of the alleged low yield of rice and purchase addition inpaddy amounting to Rs. 1,27,541/-, sustained the addition of KhudiPhak to the extent of Rs. 2,00,313/- and the trading addition foralleged low yield of husk to the extent of Rs.2,20,840/-. The CIT(A()directed the assessing officer to re-compute interest as per law. 5.Both sides felt aggrieved and, thus, they filed theirseparate appeals before the Tribunal. The Tribunal by its order dated5.2.2010 dismissed both the appeals. 6.Hence, this appeal at the instance of the assessee. 7.We have heard learned counsel for the appellant andhave perused the record. 8.Learned counsel for the assessee submitted that theassessing officer had not rejected the books of account and in theabsence thereof, recourse to determine the income on estimate basiswas not justified. Reliance was placed on a judgment of the Delhi High Court in Income Tax Appeal No. 26 of 2006, decided on27.11.2008. It was further submitted that Special Leave Petitionagainst the above order had been dismissed by the Supreme Court. 9.We have considered the submission of the learnedcounsel for the appellant. 10.The assessing officer while taking recourse to estimationfor determination of income of the assessee noted that the assessee-firm had suppressed the sale of Khudi Phak to the extent of 3.5% ofthe paddy milled, and had also observed that the suppression of ricehusk was the great source of income for the rice sheller and the saleof the husk had not been shown in the books of account. Once thatwas so, it could not be said that the books of account of theassessee had been accepted by the assessing officer. The CIT(A)while reducing the addition on account of production and sale ofKhudi Phak had noted as under: “As regards the production and sale of khudi phak,as discussed earlier, the appellant’s explanation for notshowing any yield of this by-product is not convincing atall. Since it is a normal by-product in the rice shellingmills, the appellant should have corroborated its claim ofno yield of this by-product due to old machinery bycomparison with mills of similar age and their yield. Theassessee has come up belatedly with an explanation ofmixing up of the khudi phak with husk. I do not acceptthis explanation as it is not corroborated by any evidenceand is also entirely different from the claim made by theAO. Hence, notwithstanding the fact that the books ofaccount of the appellant have not been rejected, I am of “As regards the production and sale of khudi phak,as discussed earlier, the appellant’s explanation for notshowing any yield of this by-product is not convincing atall. Since it is a normal by-product in the rice shellingmills, the appellant should have corroborated its claim ofno yield of this by-product due to old machinery bycomparison with mills of similar age and their yield. Theassessee has come up belatedly with an explanation ofmixing up of the khudi phak with husk. I do not acceptthis explanation as it is not corroborated by any evidenceand is also entirely different from the claim made by theAO. Hence, notwithstanding the fact that the books ofaccount of the appellant have not been rejected, I am of the view that the assessee has not shown the productionand sale of khudi phak produced by it, since it is a normaloutput of the rice sheller and no valid explanation hasbeen submitted in this regard. However, I accept thealternative submissions of the assessee that yield ofkhudi phak may be taken at 2% of paddy milled instead of3.5% estimated by the AO since in the decision in thecase of Shankar Rice Company Kotkapura (supra), theyield of 2% khudi phak has been held to be reasonableby the jurisdictional ITAT (SB) (though varyingpercentages of both higher and lower, were placed beforethe Hon’ble Special Bench of ITAT) and the AO has alsonot given any comparable case during this period in thisarea showing higher yield of khudi phak to influence thisdecision. As regard the rate of Rs.350/- per qtl. appliedby the AO, it is appellant’s contention that the same maybe taken at Rs.205/- per qtl. which is 60% of that of ricebran. However, no reason for taking the sale price at60% of that of rice bran has been submitted. The AO hasalso not commented on this contention in the remandreport. In the case of Shankar Rice Company, Kotkapura(supra) the Hon’ble Special Bench reduced the rate ofRs.79/- per qtl. basing it on sale as per assessee’s bills.No such instance has been pointed out by the eitherparty. The sale rate of rice bran has been shown atRs.343/- per qtl. Since khudi phak would be sold at lowerrate than that of rice bran, and in absence of anyevidence, the rate is estimated at Rs.225/- per qtl. The AO is directed to recalculate the addition on account ofsale of khudi phak by estimating the yield rate and sale at2% of paddy milled from both own purchase and fromGovt. agencies and to value the same at Rs.225/- per qtl.The addition should be restricted accordingly.” 11. Further, the findings of CIT(A) in respect of suppressionin yield of husk are recorded in para 6.3 of the order in the followingterms:- “As regards suppression in yield of husk the appellanthas claimed that a part of husk produced was consumedinternally. Significantly, no such claim was made beforethe AO, which shows that the appellant’s stock records inrespect of production, consumption and sale of husk arenot reliable. The appellant has shown 8% production ofhusk. No records to show that more husk was actuallyproduced and consumed internally has been produced.However, giving some credence to the appellant’scontention that a part of the husk has been consumed indryer, I would estimate the consumption at 5% of thepaddy milled. Thus, the assessee is given a benefit of2226 qtl. of the husk as consumed internally. Theproduction of husk is estimated at 18%. The short fall inhusk will, therefore, work out to 2579 qtls. The AOapplied the rate of Rs.125/- per qtl. on the sale of husk.The same is not backed by any evidence, though it isstated to be with the rates prevalent during March, 2005.However, the average rate declared by the assessee isRs.85.63/- per qtl. which has not been disproved by the AO. I, therefore, direct the AO to work out the addition onaccount of suppressed sale of husk at the rate ofRs.85.63/- per qtl. Ground No.5 is, thus, partly allowed.”12. The Tribunal had affirmed the aforesaid findings of CIT(A)vide order dated 5.2.2010. AO. I, therefore, direct the AO to work out the addition onaccount of suppressed sale of husk at the rate ofRs.85.63/- per qtl. Ground No.5 is, thus, partly allowed.”12. The Tribunal had affirmed the aforesaid findings of CIT(A)vide order dated 5.2.2010. 13. No perversity or illegality could be pointed out in the orderof the Tribunal affirming the findings recorded by the CIT(A).Reliance placed on the judgment of the Delhi High Court does notcome to the rescue of the assessee as the said case wasadjudicated on individual fact situation involved therein. 14.In view of the above, no substantial question of law arisesin this appeal for consideration by this Court. There is, thus, no meritin the appeal and the same is accordingly dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE