1984 (1) TMI 83 - AT - Income Tax

Summary

Issues:
1. Jurisdiction of the IAC to issue directions under section 144A of the IT Act.
2. Filing of cross objections by the assessee.
3. Disallowance of addition made by the ITO regarding wastage in production.
4. Discrepancy in the sale rate of scrap between the assessee and the department.

Jurisdiction of the IAC to issue directions under section 144A of the IT Act:
The case involved a dispute regarding the jurisdiction of the Income-tax Appellate Tribunal (ITAT) to consider cross objections raised by the assessee regarding the directions issued under section 144A of the Income Tax Act, 1961. The assessee contended that once a reference was made under section 144B to the Income-tax Appellate Commissioner (IAC), the operation of section 144A was excluded. The department argued that the cross objection was not valid as it did not relate to any part of the order of the Commissioner (Appeals) as required by section 253(4) of the Act. The ITAT held that since the plea regarding the inapplicability of section 144A was not raised before the Commissioner (Appeals), it could not be considered in the cross objections. Therefore, the ITAT rejected the cross objection and other related objections.

Filing of cross objections by the assessee:
The ITAT clarified that a cross objection can only be filed against a part of the order of the Commissioner (Appeals) and must have been dealt with in that order. In this case, since the plea regarding the inapplicability of section 144A was not raised before the Commissioner (Appeals), the ITAT deemed the cross objection incompetent and rejected it. The ITAT emphasized that a cross objection must relate to a specific part of the Commissioner (Appeals) order to be considered valid for further review.

Disallowance of addition made by the ITO regarding wastage in production:
The dispute centered around the addition of Rs. 40,150 by the Income Tax Officer (ITO) on account of invisible and unproved wastage in the production process. The ITO contended that the claimed wastage by the assessee was excessive and made adjustments based on estimates and comparable cases. However, the Commissioner (Appeals) found the ITO's calculations unreasonable and deleted the entire addition. The ITAT, after hearing both parties, decided to restore the matter to the ITO for further examination. The ITAT directed the ITO to consider comparable cases to determine the average percentage of wastage in the manufacturing process and evaluate the reasonableness of the loss claimed by the assessee.

Discrepancy in the sale rate of scrap between the assessee and the department:
Another issue in the case was the significant difference in the sale rate of scrap between the assessee and the department. The Commissioner (Appeals) had deleted the addition made by the ITO regarding the sale of scrap, citing lack of opportunity for the assessee to explain and the use of a comparable rate without informing the assessee. The ITAT disagreed with this approach and directed the ITO to collect comparative rates of scrap from various markets to determine a reasonable rate for sales made by the assessee. The ITAT emphasized the importance of using market rates and not solely relying on the assessee's sales vouchers to ensure fair assessment.

In conclusion, the ITAT partially allowed the appeals, emphasizing the need for a thorough examination of the wastage in production and the sale rate of scrap to ensure a fair and reasonable assessment in line with comparable cases and market rates.