2007 (8) TMI 312 - HC - Income Tax

Low gross profit rate disclosed on account of theft of raw material - assessee is unable to prove the theft - Tribunal concluded that once findings have been recorded that no theft was committed at the premises of the assessee, a presumption is liable to be raised against the assessee that it had manufactured goods out of such raw material and sold the same in open market claim of loss due to theft is not allowable

Summary

Issues:
- Determination of gross profit rate for assessment years 1990-91 and 1992-93.
- Treatment of claimed loss due to theft and insurance claim.
- Assessment of addition of Rs. 21,39,950/- against the assessee.

Analysis:
1. Determination of Gross Profit Rate:
The appeals challenged the order of the Income Tax Appellate Tribunal regarding the gross profit rate for the assessment years 1990-91 and 1992-93. The Assessing Officer made additions based on a fall in the gross profit rate, suspecting the explanation provided by the assessee regarding a theft incident affecting the profit rate. The Commissioner Income Tax (Appeals) disagreed with the Assessing Officer's conclusion, stating that the Assessing Officer misdirected himself and contravened Section 36(2) of the Income Tax Act. The Tribunal reviewed voluminous evidence and concluded that the theft claim was unfounded. It directed the Assessing Officer to recompute the addition based on the observations made, highlighting discrepancies in the G.P. rate calculations.

2. Treatment of Claimed Loss and Insurance Claim:
The Tribunal found no evidence of theft at the assessee's premises, leading to the rejection of the claimed loss and insurance claim. The Tribunal sustained the addition of Rs. 21,39,950/- against the assessee, emphasizing that the insurance company had already rejected the claim. The Tribunal held that the assessee could not claim the loss as a deduction in the profit and loss account due to the rejection by the insurance company. The Tribunal's decision was based on the rejection of the claim by the insurance company and previous findings related to the assessment year 89-90.

3. Assessment of Addition of Rs. 21,39,950/-:
The Tribunal's decision to uphold the addition of Rs. 21,39,950/- against the assessee was based on the presumption that the assessee had manufactured goods out of raw material and sold them in the open market. The Tribunal concluded that the rejection of the insurance claim by the company led to the denial of the loss claimed by the assessee. The Tribunal's findings on this issue favored the revenue, leading to the allowance of the revenue's appeal for the assessment year 1992-93. The Tribunal's decision was supported by the rejection of the insurance claim and the absence of evidence supporting the claimed loss.

In conclusion, the High Court dismissed the appeals, stating that no substantial question of law emerged for determination. The Court found the appeals to be misconceived as the issues raised were deemed to be questions of fact with ample evidence supporting the conclusions reached by the Tribunal. The Court upheld the Tribunal's decision regarding the gross profit rate, treatment of claimed loss and insurance claim, and the assessment of the addition against the assessee.