1997 (4) TMI 104 - AT - Income Tax

Summary

Issues Involved:
1. Inflation of consumption of silver-foils.
2. Inflation of consumption of other raw materials.
3. Suppression of production.
4. Minor grounds related to interest under section 215.

Detailed Analysis:

1. Inflation of Consumption of Silver-Foils:
The Assessing Officer (AO) made additions of Rs. 34,71,505 and Rs. 36,33,684 for the assessment years 1985-86 and 1986-87, respectively, alleging inflation of consumption of silver-foils. The AO based these additions on discrepancies found during a search operation and statements from employees. The CIT (Appeals) deleted these additions, stating that the AO did not prove fictitious debits to reduce profit and that excess stocks found were accounted for. The CIT (Appeals) noted the variation in the weight of silver-foils due to different ratios for various brands of tobacco.

The Tribunal's Accountant Member upheld the CIT (Appeals)'s deletion, emphasizing that the AO's observations were based on a visit long after the relevant years and did not justify the additions. The Judicial Member, however, disagreed, arguing that the AO's findings were based on substantial evidence, including the employees' statements and the physical verification of silver-foil consumption. The Third Member concurred with the Accountant Member, noting discrepancies in the employees' statements and the lack of primary records to support the AO's claims. The final decision was to dismiss the Revenue's appeals and uphold the deletion of these additions.

2. Inflation of Consumption of Other Raw Materials:
The AO made additions of Rs. 8,74,391 and Rs. 11,69,949 for the assessment years 1985-86 and 1986-87, respectively, for alleged inflation of consumption of other raw materials. The CIT (Appeals) deleted these additions, stating that the AO failed to elucidate extra purchases or investments outside the books of accounts. The Tribunal's Accountant Member agreed with the CIT (Appeals), noting that the AO's estimates were based on presumptions without cogent evidence. The Judicial Member concurred with this view, and thus, the deletion of these additions was upheld.

3. Suppression of Production:
The AO made additions of Rs. 20,00,000 and Rs. 24,00,000 for the assessment years 1985-86 and 1986-87, respectively, for alleged suppression of production. The CIT (Appeals) confirmed these additions, citing lapses in the regular checkup by the Excise Authorities. The Tribunal's Accountant Member found the AO's estimates excessive and reduced the additions to Rs. 4,00,000 and Rs. 3,00,000 for the respective years, considering the past history of the assessee and the overall shortage claimed. The Judicial Member agreed with this reduction, and thus, the partial allowance of the assessee's appeals was upheld.

4. Minor Grounds Related to Interest Under Section 215:
The assessee raised a ground regarding the charge of interest under section 215. The CIT (Appeals) did not adjudicate on this ground, and the Tribunal restored the matter to the CIT (Appeals) for fresh adjudication after giving an opportunity of being heard to the assessee.

Conclusion:
The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals in part, upholding the deletion of additions for inflation of silver-foils and other raw materials, and reducing the additions for suppression of production. The issue of interest under section 215 was remanded to the CIT (Appeals) for fresh adjudication.