1986 (6) TMI 57 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition in the biri account.
2. Deletion of addition for unverifiable and excessive expenses on wrapper, label, and labelling.
3. Deletion of addition for excessive claim of tobacco consumption.
4. Deletion of addition of cash credits.

Issue-wise Detailed Analysis:

1. Deletion of Addition in the Biri Account:

The revenue contended that the Commissioner (Appeals) was not justified in deleting the addition of Rs. 1,93,188 made in the biri account for alleged sales outside the disclosed stock. The department argued that the appellant sold more biris than available in stock, indicating concealed income. The Commissioner (Appeals) admitted new evidence without recording reasons as required under rule 46A of the Income-tax Rules, 1962, and did not provide the assessing authority with a reasonable opportunity to examine this evidence. The assessee argued that the trading account should not have been taken as a stock account, and the advances received before dispatch were included in sales. The Commissioner (Appeals) deleted the addition based on confirmations from seven customers, which were not presented to the lower authorities. The Tribunal held that the Commissioner (Appeals) contravened rule 46A by not recording reasons for admitting new evidence and not providing a reasonable opportunity to the assessing authority. The order was set aside for fresh adjudication.

2. Deletion of Addition for Unverifiable and Excessive Expenses on Wrapper, Label, and Labelling:

The revenue argued that the Commissioner (Appeals) erred in deleting the addition of Rs. 5,16,279 for unverifiable and excessive expenses on wrapper, label, and labelling. The department claimed these expenses were disproportionate compared to previous years and not supported by vouchers. The Commissioner (Appeals) admitted a certificate from Hind Tobacco Co. without recording reasons or providing the assessing authority a reasonable opportunity to examine the new evidence. The assessee argued that the expenses were recorded in the books of account, which were seized by the department, and the method of incurring these expenses had changed. The Tribunal found that the Commissioner (Appeals) admitted new evidence in contravention of rule 46A and set aside the order for fresh consideration.

3. Deletion of Addition for Excessive Claim of Tobacco Consumption:

The revenue contended that the Commissioner (Appeals) erred in deleting the addition of Rs. 2,00,850 for excessive tobacco consumption. The department argued that the tobacco supplied to contractors was not fully accounted for, and the Commissioner (Appeals) admitted a certificate from Hind Tobacco Co. without recording reasons or providing a reasonable opportunity to the assessing authority. The assessee argued that the price at which tobacco was supplied was immaterial, and the remaining tobacco with contractors would be accounted for in the following year. The Tribunal held that the Commissioner (Appeals) contravened rule 46A by admitting new evidence without recording reasons and not providing a reasonable opportunity to the assessing authority. The order was set aside for fresh adjudication.

4. Deletion of Addition of Cash Credits:

The revenue argued that the Commissioner (Appeals) erred in deleting the addition of Rs. 3,98,000 for cash credits, including Rs. 1,50,000 in the name of Shri Vishwa Nath Singh, based on an affidavit filed for the first time before the Commissioner (Appeals). The department claimed that the Commissioner (Appeals) contravened rule 46A by admitting new evidence without recording reasons and not providing a reasonable opportunity to the assessing authority. The assessee argued that the cash credits were explained by withdrawals in previous years and that the ITO was present during the appeal hearing. The Tribunal held that the Commissioner (Appeals) acted in contravention of rule 46A and set aside the order for fresh adjudication. The issue regarding the other three cash credits was also set aside for factual examination by the assessing authority.

Conclusion:

The Tribunal allowed the department's appeal in part and dismissed the assessee's cross-objection as infructuous. The Tribunal emphasized the importance of adhering to rule 46A, which requires recording reasons for admitting new evidence and providing a reasonable opportunity to the assessing authority to examine or rebut the new evidence.