1974 (12) TMI 33 - HC - Income Tax

Summary

Issues Involved:
1. Justification of the addition of Rs. 2,27,354 to the trading result.
2. Reliance on the report of the Ayyangar Commission.
3. Validity of the schedule adopted by the forest department for yield estimation.
4. Treatment of the sale to Shri Abdul Rehman Guru.
5. Rejection of the report by the Divisional Forest Officer regarding rot.

Summary:

1. Justification of the Addition of Rs. 2,27,354 to the Trading Result:
The Income-tax Officer added Rs. 2,27,354 to the trading result of the assessee based on low yield of sawn timber and alleged suppression of sales. The Tribunal upheld this addition, but the High Court found that mere low yield or out-turn of sawn timber and meagre gross profit could not be taken as indicative of suppression of sales. The Court cited precedents, including *R. B. Bansilal Abirchand Spinning and Weaving Mills v. Commissioner of Income-tax* and *B. F. Varghese (No. 2) v. State of Kerala*, to support the view that low yield or profit alone does not justify such additions without concrete evidence.

2. Reliance on the Report of the Ayyangar Commission:
The Tribunal relied on the report of the Ayyangar Commission, which was objected to by the assessee. The High Court held that the report was not legally admissible in evidence as it was merely an administrative report and not a judicial inquiry. The Court emphasized that the report could not be used without giving the assessee an opportunity to explain and counter the findings, citing *Commissioner of Income-tax v. East Coast Commercial Co. Ltd*.

3. Validity of the Schedule Adopted by the Forest Department for Yield Estimation:
The schedule adopted by the forest department for estimating the yield of sawn timber was used by the income-tax authorities. The High Court ruled that this schedule had no statutory or legal force and could not be relied upon for tax assessments. The Court referenced *Director-General, Ordnance Factories Employees' Association v. Union of India* to support this view.

4. Treatment of the Sale to Shri Abdul Rehman Guru:
The sale of timber to Shri Abdul Rehman Guru was treated as fictitious by the Income-tax Officer without verification. The High Court criticized this approach, stating that the sale could have been easily verified by examining the buyer. The Court found that the authorities acted unjustly by dismissing the sale as fictitious without proper investigation.

5. Rejection of the Report by the Divisional Forest Officer Regarding Rot:
The report by the Divisional Forest Officer, which indicated a high incidence of rot, was dismissed by the income-tax authorities as inconclusive. The High Court held that there was no evidence of collusion or exaggeration in the report and that the authorities should have sought clarification from the officer instead of ignoring the report.

Conclusion:
The High Court concluded that there was no legal material to justify the addition of Rs. 2,27,354 to the trading result of the assessee and that the Tribunal erred in sustaining this addition. The reference was answered in the negative.