1993 (12) TMI 31 - HC - Income Tax

Best Judgment Assessment Income From Undisclosed Sources Income Tax Act Rejection Of Accounts

Issues Involved:

1. Application of section 145(2) of the Income-tax Act, 1961.
2. Addition of amounts for excess consumption of bidi leaves and suppressed production of chhat and mapari bidis.

Summary:

Issue 1: Application of section 145(2) of the Income-tax Act, 1961

The Tribunal was right in holding that the Income-tax Officer correctly applied section 145(2) of the Income-tax Act, 1961, for the assessee's assessment for the assessment year 1964-65. The assessee had not produced relevant records relating to its day-to-day manufacture of bidis, including the quantity of bidis manufactured daily, the figures of bidi leaves consumed per day in each factory, and the record relating to the daily collection of chhat and mapari bidis. The Tribunal correctly held that the Income-tax Officer was not satisfied with the fairness or correctness of the accounts of the assessee and was entitled to make an assessment in the manner provided in section 144. Therefore, Question No. 1 was answered in the affirmative and in favor of the Revenue.

Issue 2: Addition of amounts for excess consumption of bidi leaves and suppressed production of chhat and mapari bidis

The Tribunal's conclusion directing the addition of Rs. 1 lakh on account of excess consumption of bidi leaves was not supported by the material on record. The Tribunal failed to take into account the bidi leaves consumed in the production of chhat and mapari bidis. Had this been done, there would not have been any need to add any amount under this head. Therefore, the addition of Rs. 1,00,000 by the Tribunal was not justified.

On the question of suppression of production of chhat bidis, the Tribunal estimated 15 chhat bidis per day per worker based on the evidence of workers examined by the Income-tax Officer and the assessee. The Tribunal's estimate of average production per worker per day at 800 bidis was based on an appreciation of evidence. The Tribunal also considered that some chhat bidis were given to workers free of charge and for free advertisement and estimated the number of such chhat bidis at 3 per thousand. The assessee should be given credit for the sales of chhat bidis disclosed in their books of account, and only the balance quantity should be added under the head of suppressed production of chhat bidis.

Regarding suppressed production of mapari bidis, the Tribunal estimated 10 mapari bidis per thousand per workman. The Tribunal did not accept the assessee's contention that mapari bidis were included in the production figures of bidis. The Tribunal found that mapari bidis were not included in the production figures of the assessee.

Therefore, the Tribunal's conclusions on the suppressed production of chhat and mapari bidis were based on material evidence, and the additions under these heads were justified. However, the assessee is entitled to credit for the sale proceeds of chhat bidis disclosed in its books of account.

Conclusion:

Question No. 2 was answered as follows:
- The Tribunal's conclusion directing the addition of Rs. 1 lakh for the excess consumption of bidi leaves was erroneous in law.
- The additions on account of the estimated value of the suppressed production of chhat and mapari bidis were in accordance with law, with the assessee entitled to credit for the sale proceeds of chhat bidis disclosed in its books of account.

There was no order as to costs.

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