1979 (10) TMI 55 - HC - Income Tax

Summary

Issues:
1. Whether the Tribunal was legally justified in rejecting the accounts and making an addition of Rs. 10,000 towards the trading results despite finding no defects in the account books maintained by the assessee?
2. Whether the Tribunal was justified in upholding an addition of Rs. 10,000 based on the facts and circumstances of the case?

Analysis:

Issue 1:
The High Court considered the case where the assessee was engaged in supplying firewood to sugar mills during the assessment year 1970-71. The Income Tax Officer (ITO) rejected the assessee's accounts due to various defects, including an excessive shortage in fuel wood purchased. The ITO made an ad hoc addition of Rs. 75,000 to the returned income. On appeal, the Commissioner (Appeals) held that the purchases were fully proved and considered certificates from divisional forest officers regarding the weight of firewood. The Commissioner (Appeals) found no standard weight for firewood chattas and disagreed with the ITO's assumption of weight per chatta. An addition of Rs. 17,000 was made based on a calculated shortage. The Tribunal found no defects in the account books and accepted the rate of profit disclosed by the assessee for previous years. However, the Tribunal made an ad hoc addition of Rs. 10,000 due to potential losses from pilferage, theft, and driage during the storage and transportation of firewood. The High Court held that since the accounts were found to be correct and complete, no ad hoc addition was justified. The Court emphasized that additions can only be made if the accounts are not correct and complete as per Section 145 of the Income Tax Act.

Issue 2:
Regarding the second question, the High Court answered in the negative, indicating that the Tribunal was not justified in upholding the addition of Rs. 10,000 towards the trading result. The Court reiterated that since the accounts were deemed correct and complete, no further addition was warranted. The assessee was granted costs of Rs. 200, with the counsel's fee assessed at the same amount.

In conclusion, the High Court ruled against the Tribunal's decision to make an ad hoc addition of Rs. 10,000, emphasizing the importance of maintaining correct and complete accounts in determining taxable income.