2004 (11) TMI 63 - HC - Income Tax

Additions on account of shortage of cloth and disallowing of checking charges - 1. Whether Tribunal was right in law in deleting the addition made on account of shortage of cloth? 2. Whether Tribunal was right in law in deleting the addition made on account of disallowing the checking charges? Tribunal while allowing the claim of the assessee with regard to shortage of cloth had observed that Revenue had not set up a case that the assessee had sold the stock outside the books of account. The Tribunal had recorded that there has been no dishonest intention on the part of the assessee in claiming shortage of cloth Further decision of the Tribunal holding the expenses for checking of material to be genuine is based on appreciation of evidence and no perversity could be pointed out by the Revenue in the finding recorded by the Tribunal - The finding of fact arrived at by the Tribunal is neither erroneous nor perverse. The finding given by the Tribunal is a finding of fact. We are afraid that it is not within the domain of this court to reappreciate the evidence while dealing with the petition under section 256(2)

Summary

Issues:
1. Deletion of addition made on account of shortage of cloth.
2. Deletion of addition made on account of disallowing checking charges.

Analysis:

Issue 1: Deletion of addition made on account of shortage of cloth
The assessee, a private limited company engaged in wholesale cloth trading, filed its income return declaring Rs. 1,66,000. The Assessing Officer added Rs. 5,000 for a shortage of 461.80 meters of cloth. The Commissioner of Income-tax (Appeals) confirmed this addition. However, the Tribunal allowed the claim, noting that the total cloth handled exceeded 66 lakh meters, with only a small quantity found short. The Tribunal found no evidence of the stock being sold outside the books and concluded no dishonest intention. The High Court declined to entertain this issue as no question of law arose.

Issue 2: Deletion of addition made on account of disallowing checking charges
The Assessing Officer disallowed Rs. 1,42,421 claimed as cloth checking expenses, later rectified to Rs. 31,037. The Commissioner of Income-tax (Appeals) enhanced the income by Rs. 1,11,284. The Tribunal, however, allowed the claim after considering various facts, including the agreement terms, bill details, and lack of discrepancies in evidence. The High Court upheld the Tribunal's decision, emphasizing that the finding was based on evidence appreciation, and no perversity was found. Citing a precedent, the court held that the Tribunal's factual finding was not erroneous or perverse, declining to refer the issue for further review.

In conclusion, the High Court dismissed the Revenue's petition, upholding the Tribunal's decisions on both issues. The court highlighted the importance of factual findings and evidence appreciation in tax matters, declining to interfere with the Tribunal's conclusions.