1988 (2) TMI 427 - HC - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 3,54,350 for excess raw cashew nuts under key loan with State Bank of Travancore.
2. Addition of Rs. 17,45,090 for excess raw nuts with State Bank of Travancore.
3. Allowance of weighted deduction under section 35B on office and other miscellaneous expenses.
4. Addition of Rs. 8,17,500 under section 69A for excess stock of cashew kernels with South Indian Bank.
5. Tribunal's refusal to refer questions of law to the High Court.

Detailed Analysis:

1. Addition of Rs. 3,54,350 for Excess Raw Cashew Nuts:
The Income-tax Officer added Rs. 3,54,350 being the value of 650 bags of excess raw cashew nuts under a key loan with the State Bank of Travancore. The Commissioner of Income-tax (Appeals) deleted this addition, which was sustained by the Appellate Tribunal. The Tribunal found that the registers used for these additions were unreliable due to alterations and erasures, destroying their evidentiary value. The Tribunal concluded, "it is not possible to act on such entries and fasten the assessee ... with any liability."

2. Addition of Rs. 17,45,090 for Excess Raw Nuts:
The Income-tax Officer made an addition of Rs. 17,45,090 for excess raw nuts with the State Bank of Travancore. The Commissioner of Income-tax (Appeals) reduced this to Rs. 10,08,250. The Appellate Tribunal further deleted this amount, citing the unreliability of the bank's registers. The Tribunal noted, "the entries therein are quite unreliable" and "goods not in existence are shown as pledged to avail of greater bank facilities."

3. Weighted Deduction under Section 35B:
The Commissioner of Income-tax (Appeals) allowed weighted deduction under section 35B on office and other miscellaneous expenses, based on the Special Bench decision in the case of J. Hemchand and Co. The Appellate Tribunal upheld this decision, and the High Court found no referable question of law arising from this finding.

4. Addition of Rs. 8,17,500 under Section 69A:
For dealings with the South Indian Bank, the Income-tax Officer added Rs. 8,17,500 under section 69A for excess stock of cashew kernels. The Commissioner of Income-tax (Appeals) sustained this addition. The Appellate Tribunal confirmed the addition but adjusted it against the closing stock, deducting Rs. 60,000 already shown by the assessee. The High Court found this to be a pure finding of fact with no referable question of law.

5. Tribunal's Refusal to Refer Questions of Law:
The Revenue requested the Tribunal to refer certain questions of law to the High Court, which the Tribunal declined. The High Court reviewed the Tribunal's findings and concluded that the questions posed were pure questions of fact, not open to attack. The High Court declined to refer these questions, stating that the Tribunal's findings were based on valid and cogent material.

Conclusion:
The High Court dismissed the original petitions filed by the Revenue, concluding that the Tribunal's findings were based on unreliable data and were purely factual. The court also noted the serious lapses in the bank's record-keeping and directed further action by the Reserve Bank of India and the Ministry of Finance. Copies of the judgment were ordered to be forwarded to relevant authorities for appropriate action.