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Issues Involved:
1. Justification of the addition of Rs. 94,000 due to the discrepancy in the bank statement regarding hypothecation of cotton seeds. 2. Rejection of the assessee's explanation for the addition of Rs. 94,000 while accepting explanations for other additions. 3. Reasonableness and evidentiary basis of the Tribunal's finding confirming the addition of Rs. 94,000. 4. Justification of the Tribunal's conclusion about the lack of satisfactory evidence to support the assessee's explanation. Summary: Issue 1: Justification of the Addition of Rs. 94,000 The Tribunal upheld the addition of Rs. 94,000 by the Income-tax Officer, concluding that the assessee had 1,17,543 kilograms of unaccounted cotton seeds. The Tribunal inferred this from the discrepancy between the hypothecated stock and the stock register, which showed only 2,457 kilograms of cotton seeds on March 25, 1969. The Tribunal did not accept the assessee's explanation that the hypothecated cotton seeds were embedded in the unginned cotton. Issue 2: Rejection of Assessee's Explanation The Tribunal accepted the assessee's explanation regarding the hypothecation of 200 bales of cotton and 34,000 kilograms of unginned cotton but rejected the explanation for the hypothecation of 1,20,000 kilograms of cotton seeds. The Tribunal noted that the assessee had taken advances on cotton bales, unginned cotton, and cotton seeds separately and found no evidence that advances on unginned cotton were unavailable to the assessee. Issue 3: Reasonableness and Evidentiary Basis The High Court found that the Tribunal's inference lacked positive evidence. The Tribunal emphasized two negative circumstances: the availability of advances on unginned cotton and the absence of evidence showing that such advances were not available. The High Court noted that the assessee had produced evidence, including a certificate from the Bank of Baroda, showing that its overdraft limit was exhausted, and further advances were not possible without additional hypothecation. Issue 4: Lack of Satisfactory Evidence The High Court concluded that the Tribunal's inference was not supported by any positive evidence. The assessee had sufficient unginned cotton in stock, and the Tribunal's reliance on the negative circumstances was insufficient to justify the addition. The High Court agreed with the Appellate Assistant Commissioner, who found it unreasonable to assume that the assessee purchased 1,20,000 kilograms of cotton seeds outside the books, hypothecated them, drew amounts against such stock, and sold the entire stock outside the books. Conclusion: The High Court answered questions Nos. 1, 3, and 4 in the negative, in favor of the assessee and against the Revenue. Question No. 2 was deemed unnecessary to answer. There was no order as to costs in this reference.
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