M/S RIKHI RAM MAHAVIR PARSAD vs. C.I.T.,JALANDHAR

Facts

During Assessment Year 1982-83, a survey under Section 153A was conducted at the assessee's (M/s Rikhi Ram Mahavir Parsad) business premises and godown. The physical stock of utensils was valued at ₹1,50,429/-, while the stock as per books was valued at ₹3,19,738/-. The Assessing Officer (AO) initially made an addition of ₹1,00,896/- on account of the shortage. The assessee objected, leading to a re-verification where the shortage was reduced to ₹1,00,896/-. The AO's order was upheld by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT). The assessee's application for referring the matter to the High Court was refused by the ITAT, leading to a petition under Section 256(2) of the Income Tax Act, 1961.

Held

The High Court held that the question of law referred to it was essentially a question of fact, falling outside the scope of Section 256 of the Income Tax Act, 1961 (as it was at the relevant time). The Court reasoned that the shortage was determined by the Assessing Officer based on physical verification and appreciation of the value of stocks and the books maintained by the assessee. The fact that the Assessing Officer partly accepted the assessee's objections and reduced the difference indicated that the issue rested upon the appreciation of evidence, which is not a question of law. Therefore, the reference was returned unanswered. No specific finding was given on the merits of the addition under Section 69.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the addition of ₹1,00,896/- on account of shortage in physical stocks as compared to the stocks as per books was correctly made by the Assessing Officer under Section 69 of the Income Tax Act, 1961? Assessee's Contention: The assessee did not appear before the High Court, and it was stated that they had no instructions from the assessee to appear. Revenue's Contention: The revenue argued that the question of law was essentially a question of fact, based on the physical verification of stocks and appreciation of evidence, and thus beyond the scope of Section 256 of the Act.