SUKHADIA JAMNADAS MAGANLAL vs. THE INCOME TAX OFFICER

The assessee has filed this Tax Appeal under TAXAP/1127/2007 2/12 Section 260A of the Income-Tax Act, 1961 for the assessment year 1999-2000 proposing to formulate the following substantial question of law : (i) “Whether on the facts and in circumstances of the case, the Tribunal was right in law in rejecting the production and sale and shortage/wastage as per the books when in all the years in the past book results and yield and shortages as shown by the assessee were accepted?” (ii)“Whether the Tribunal was right in law in estimating the production, wastage and the sales on theoretical basis and on its own without either considering the past assessment of the assessee or any comparative case or the tribunal decision of an earlier year on identical point ?” (iii)”Whether on the facts and in the circumstances of the case because according to the Tribunal Sec.145 applied estimating the turnover and the gross profit on the basis of past assessments was a right thing to do in law?”

This Court has issued the notice on 31-1-2008. The notice was issued to the TAXAP/1127/2007 3/12 respondent and Mr. M.R. Bhatt learned Sr. Standing Counsel has filed his appearance on behalf of the respondent.

Generally, in Tax Appeals, the Court either admits the tax appeal and formulates substantial question of law or it dismisses tax appeal at the admission stage itself. Notice is hardly issued where either the Court intends to dispose of the matter at the admission stage or to hear the other side before formulating any substantial question of law.

The Court in the present case is of the view that the Tribunal's order on the face of it, seems to be erroneous or unreasonable, it is of no use to formulate now the question of law on perversity and to keep the matter pending for number of years in the High Court. Instead of that, the Court decides to hear the parties at length at the admission stage and takes appropriate decision. It is in this back ground of the matter that the appeal is heard at length and learned Counsel Mr. J.P. Shah as well as learned Sr. Standing Counsel Mr. M.R. Bhatt had made their submissions at great length and the court proceeded to dispose of the matter on the basis of the submissions made by the parties.

Brief facts giving rise to the present appeal are that the assessee has filed its Return of Income for the assessment year 1999-2000 disclosing total income of 1,20,787/-. The Assessing Officer, however, without finding out a single case of suppressed sale, computed on absolutely theoretical basis the production and sale of sweets worth Rs.35,09,770/- after allowing the shortage of 1% and deducting therefrom the sales of Rs.19,51,289/- computed the suppressed sales of sweets of Rs.15,58,481/- and likewise computed the suppressed sales of 'farsan' of Rs.3,05,171/- after deducting the shortage of 5%.

Being aggrieved by the said order of the Assessing Officer, the assessee preferred an appeal before the CIT(A), Baroda. The Assessee pointed out before the CIT)A) that its gross profits of 22.35% compares favourably with 23.69% of Assessment Year 1998-99 and 23.06% of Assessment Year 1997-98. The addition made by the Assessing Officer would bring about the gross profit to 54.07%. It was further pointed out that the complete details of raw materials purchased, consumption thereof and production of finished goods have been maintained. The Assessee supplied to the Assessing Officer complete details of item-wise quantity of purchase of raw materials

Being aggrieved by the said order of the learned CIT(A), the Revenue took up the matter before the Income-Tax Appellate Tribunal. Before the Tribunal, the assessee relied upon the Tribunal's own decision for the assessment year 1975-76. The Tribunal did not give any importance to the acceptance of 25% of gross profit by the Tribunal itself in the assessment ear 1975—76 and on its own without any evidence

The inbuilt defect in the Tribunal's order as pointed out by the learned Counsel is that the assessee had shown the sale of 'farsan' of 22243 kgs; the Tribunal because of theoretical basis computed it at 17337 kgs. (in other words, lower than what the assessee had shown); whereas against the sweets sale of 22356 kgs. shown by the assessee, the Tribunal computed 36920 kgs. against the Assessing Officer's 31805 kgs. (in other words, higher than even the Assessing Officer.) Such was the result of absolutely theoretical approach of the Tribunal, unconnected with the facts of the case.

Being aggrieved and dissatisfied with the order dated 1-12-2006 of the Tribunal, the assessee has preferred this Tax Appeal before this Court.

Learned Counsel Mr.J.P. Shah appearing for the assessee has submitted that the Tribunal has estimated the production and sale without citing any comparative case in support and quite contrary to the contemporaneous record

Mr. M.R. Bhatt, learned Sr. Standing Counsel for the Revenue has submitted that the Tribunal's order clearly reveals the finding of fact and no question of law arises out of the order of the Tribunal. Hence the appeal of the assessee is required to be dismissed at the threshold. He has submitted that the Tribunal has specifically observed in its order that looking to the assessee's business, non-maintenance of quantitative details and day-to-day stock, sales and purchases being not fully vouched, item-wise production and sales details not being available or filed, the Assessing Officer had two options; (i) to reject the books straight- way and estimate the sales as well as Gross Profit for computing the assessee's income and (ii) without rejecting the books of account straight-way, could indirectly reject the books results by adopting the method of the determination of sales and Gross Profit on the basis of yield to be determined based on the consumption of raw-material as shown in the assessee's books of account. The Tribunal has further observed that the assessing officer had opted for second option whereby the income of the TAXAP/1127/2007 9/12 assessee was determined on the basis of the yield accepted for manufacturing of such items in the commercial world and also to adopt the purchase and sales rates as prevailing in the market, keeping in view, other factors, such as, turnover and place of business etc. He, therefore, submitted that the method adopted by the CIT(A) and confirmed by the Tribunal cannot be said to be unreasonable method and estimate made by the tribunal cannot be said to be perverse or unreasonable and it does not give any rise to the substantial question of law.

We have considered the rival submissions and we have also gone through the orders of the authorities below.

It is true that normally in such matters, this Court is not interfering in the orders passed by the authorities below. This is, however, one of the exceptional cases where the Court cannot dismiss the appeal at the threshold without examining the facts and the inferences drawn therefrom by the tribunal. It is an admitted fact that the assessee is an old assessee. It is regularly assessed by the department. In the assessee's own case the matter went upto Tribunal for assessment year 1995-96, wherein GP is adopted at 25%. The TAXAP/1127/2007 10/12 Tribunal has brushed aside the said order for the assessment year 1975-76 only on the ground that complete facts for that year have not been furnished by the assessee and hence it is not justified to restrict to the point of Gross Profit rate. The tribunal has also stated in its order that it is the case of the estimation of turnover and of Gross Profit rate, rather it is the case of determination of income on the basis of yield to be calculated on the basis of actual consumption. It is, however, to be noted that it is not only for the year 1975-76 which is pressed into service by the assessee but the assessee has furnished the detailed chart showing the figures of sales and gross profit as per the return of income filed by the assessee and as per the assessment years right from assessment years 1983-84 to 1999-2000. Bare reading of this charge unequivocally indicates that GP rate adopted by the assessee for all these years is ranging from 23% to 25%. Four assessments in the past have been finalised u/s 143 (3) of the Income-Tax Act, 1961, whereas other assessments have been finalised u/s l43 (i) of the Income-Tax Act, 1961. The assessee has produced details of subsequent years i.e. for the assessment years 2000-2001 to 2002-2003, wherein GP rates were adopted at the maximum rate of 24.5%. The assessee firm was dissolved on 30-6-2001 and TAXAP/1127/2007 11/12 running business was taken over by Jamnadas Maganlal Sukhadia HUF and its case for assessment year was finalised by the order dated 30-5-2005 adopting GP rate at 24.9%. The assessee has also cited before the court comparative instances and the case of Sukhadia Jamndas Maganlal & Co. was finalised u/s 143(3) of the Income-Tax Act on 31-3-2003 accepting GP rate at 24.63% assessment for assessment year 2001-2002 was finalised u/s 143(3) of the Income-Tax Act, 1961 on 18-3-2004 accepting GP rate 22.30%. These assessments cannot be ignored or overlooked while adopting the yield. The Tribunal has taken the figures of opening stock and the period of such stock was adopted for one week and it was multiplied by 52 weeks. The figures so arrived at are so unreasonable that it resulted into higher stock than the stock adopted by the Assessing Officer. So far as the stock of sweets is concerned the Tribunal adopted sales more than the sales estimated by the Assessing Officer and the stock of 'farsan' or 'namkin' had resulted into lower than what the assessee had shown.

For the foregoing facts which have been appreciated in their true perspective, we are of the view that the Tribunal has not correctly decided the issue raised before it and it requires reconsideration. We, therefore, set

In the above view of the matter, the question posed before us, we answered accordingly and the appeal of the assessee is allowed to the aforesaid extent without any order as to costs. (K.A. Puj, J.) (Bankim N. Mehta, J.) /JVSatwara/