2003 (3) TMI 668 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 23,64,940 on account of alleged excess payment to bidi workers.
2. Deletion of addition of Rs. 16,89,216 on account of excess consumption of leaves.
3. Imposition of interest under sections 234B and 234C without specific mention in the assessment order.

Detailed Analysis:

1. Addition of Rs. 23,64,940 on Account of Alleged Excess Payment to Bidi Workers:

During the assessment proceedings, the Assessing Officer (AO) observed that the assessee's Gross Profit (G.P.) rate had declined from 17.14% in the previous year to 16.8%. The AO compared the assessee's performance with other bidi manufacturers and concluded that the assessee's G.P. and Net Profit (N.P.) percentages were very low, and the wages claimed were higher than others. The assessee claimed that higher wages were paid as the workers supplied their own leaves for bidi production, leading to a higher wage rate of Rs. 33.40 per 1,000 bidis. However, the AO found that the wages paid were excessive compared to other manufacturers and added Rs. 23,64,940 to the income.

The Commissioner of Income-tax (Appeals) [CIT(A)] confirmed the addition, noting that the assessee failed to produce records justifying the higher wages. The assessee argued that the books of account were regularly maintained and audited, and the G.P. rate was lower due to lower selling prices compared to other manufacturers.

The Tribunal found that the assessee maintained regular books of account, which were duly audited, and there were no specific defects found by the AO. It was noted that the G.P. rate fluctuated in previous years, and a slight fluctuation in the G.P. rate could not justify the addition. The Tribunal referred to various judgments, including Pandit Bros. v. CIT and Jhandu Mal Tara Chand Rice Mills v. CIT, which supported the view that mere fluctuation in G.P. rate without specific defects could not lead to an addition. The Tribunal set aside the orders of the authorities below and restored the issue to the AO for verifying the facts and figures and re-adjudicating the issue after giving the assessee an opportunity to be heard.

2. Deletion of Addition of Rs. 16,89,216 on Account of Excess Consumption of Leaves:

The AO made an addition of Rs. 16,89,216 for alleged excess consumption of leaves, noting that the assessee's claim of 1,000 grams of leaves for 1,000 bidis was excessive compared to other manufacturers. The AO allowed an additional credit of 50 grams for wastage but disallowed the remaining 50 grams.

The CIT(A) deleted the addition, observing that the AO made the addition based on surmises and conjectures without any evidence or material to show that the actual consumption of leaves was not as shown in the records. The CIT(A) noted that the assessee had been showing a range of consumption in earlier years, which had been accepted.

The Tribunal agreed with the CIT(A) that the addition was made on surmises and conjectures and upheld the deletion of the addition.

3. Imposition of Interest under Sections 234B and 234C:

The assessee raised an additional ground regarding the imposition of interest under sections 234B and 234C, arguing that no specific order for imposition of interest was passed in the assessment order. The Tribunal admitted the additional ground and referred to the Supreme Court judgment in CIT v. Ranchi Club Ltd., which held that in the absence of specific mention in the assessment order, no interest could be recovered merely by way of a demand notice.

The Tribunal found that the AO did not specifically mention charging of interest under sections 234B and 234C in the assessment order. Therefore, following the Supreme Court judgment, the Tribunal held that the AO was not justified in charging interest under sections 234B and 234C and deleted the interest imposed.

Third Member's Opinion:

The Third Member agreed with the Judicial Member's view that the entire issue should be set aside and restored to the AO for re-adjudication after considering the fresh material furnished before the Tribunal. The Third Member also agreed with the Judicial Member's view that the issue of addition on account of consumption of leaves should be set aside along with the first addition as it was interlinked. Regarding the imposition of interest under sections 234B and 234C, the Third Member agreed with the Judicial Member that since the AO had computed the interest in the body of the order, there was no need for a separate direction, and the interest should not be deleted.

Conclusion:

The Tribunal set aside the orders of the authorities below on the issue of addition of Rs. 23,64,940 and restored the matter to the AO for re-adjudication. The deletion of the addition of Rs. 16,89,216 was upheld. The imposition of interest under sections 234B and 234C was deleted as the AO did not specifically mention charging of interest in the assessment order.