1987 (2) TMI 33 - HC - Income Tax

Summary

Issues:
1. Allowability of fine paid in lieu of confiscation as part of the actual cost of goods for deduction in business profits.
2. Correctness and completeness of the assessee's books for trading results.
3. Quantum of addition to trading results due to incomplete records.

Analysis:
1. The first issue involves the allowability of a fine paid by the assessee in lieu of confiscation as part of the actual cost of goods for deduction in business profits. The Tribunal initially held that the fine of Rs. 14,000 was not deductible. However, the High Court found a question of law in this aspect, considering conflicting decisions cited by both parties. The Court directed the Tribunal to refer the question: "Whether the sum of Rs. 14,000, being the fine paid by the assessee in lieu of confiscation of the goods, could be taken into account as part of the actual cost of the goods and consequently be deductible in the computation of business profits."

2. The second issue pertains to the correctness and completeness of the assessee's books for trading results. The Income-tax Officer and the Commissioner of Income-tax (Appeals) raised concerns about the lack of specific records, leading to an addition of Rs. 1,50,000 to the trading results. The Tribunal further reduced this addition to Rs. 1,00,000. The High Court noted that the absence of day-to-day records on components used in manufacturing was a factual finding. The Court found no question of law in this regard, as the quantum of addition was deemed an estimate based on available evidence.

3. The third issue addresses the quantum of addition to trading results due to incomplete records. The Income-tax Officer estimated that one lakh pieces of free wheels were not accounted for in the books. The Commissioner of Income-tax (Appeals) and the Tribunal adjusted this figure, ultimately sustaining an addition of Rs. 1,00,000. The High Court reiterated that the determination of the quantum of addition was a matter of estimation based on the available evidence. As such, the Court found no legal question arising from this aspect of the Tribunal's order.

In conclusion, the High Court directed the Tribunal to refer the question related to the allowability of the fine paid in lieu of confiscation for further consideration. The application was disposed of with no order as to costs.