1998 (2) TMI 147 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of proviso to Section 145(1) of the Income Tax Act.
2. Application of yield percentage of rice PR. No. 106 at 65.66%.
3. Application of yield percentage of rice bran at 5%.
4. Addition of Rs. 14,100 on account of alleged unexplained cash credit.

Detailed Analysis:

1. Applicability of Proviso to Section 145(1) of the Income Tax Act:
The appellant argued that the books of accounts were properly maintained, and no defects were pointed out by the Assessing Officer (AO) or the Commissioner of Income Tax (Appeals) [CIT(A)], which would justify the application of Section 145(1) of the Income Tax Act. The AO listed several defects, including unrealistic milling capacities and uniform yield percentages, indicating that the figures in the milling registers were likely computed rather than actual. The CIT(A) observed that the appellant did not maintain proper records of weighment of paddy or rice, and the yield was estimated. The tribunal referred to precedents, including the Supreme Court cases of Chhabildas Tribhuvandas Shah & Ors. vs. CIT and S.N. Namasivayam Chettiar vs. CIT, emphasizing the necessity of maintaining a proper stock register. It concluded that the authorities were justified in invoking Section 145(1) due to the improper maintenance of stock registers and the lack of actual weighment records.

2. Application of Yield Percentage of Rice PR. No. 106 at 65.66%:
The appellant contested the AO's application of a 65.66% yield for rice PR. No. 106, arguing that the yield should account for a 3% driage due to moisture. The AO compared the appellant's yield with other mills and found it lower, leading to an addition of Rs. 2,14,980 for unexplained yield. The CIT(A) adjusted the yield to 65.66%, allowing a 2% driage but not 3% due to the lack of records on moisture and shortage. The appellant argued that the yield should be lower due to the quality of paddy purchased from the open market. The tribunal reviewed previous decisions, including those by the ITAT Amritsar Bench, which had accepted lower yields in similar cases. However, it found that the AO and CIT(A) had based their findings on expert reports and comparable cases, concluding that the appellant failed to provide cogent evidence for a lower yield. The tribunal upheld the CIT(A)'s decision to apply a 65.66% yield.

3. Application of Yield Percentage of Rice Bran at 5%:
The appellant did not press this ground, and it was accordingly dismissed.

4. Addition of Rs. 14,100 on Account of Alleged Unexplained Cash Credit:
The AO added Rs. 14,100 as unexplained cash credit in the name of an employee, Shri Vijay Kumar, doubting his creditworthiness due to his salary and lack of withdrawals for personal expenses. The CIT(A) upheld the addition, noting that Vijay Kumar had significant withdrawals in the previous year. The appellant argued that Vijay Kumar's salary was credited to his account, and he lived with his brother, reducing his personal expenses. The tribunal found that the appellant had satisfactorily explained the source of the cash credit, identifying Vijay Kumar and his salary account. It concluded that there was no justification for the addition and deleted it.

Conclusion:
The appeal was partly allowed. The tribunal upheld the applicability of Section 145(1) and the yield percentage of 65.66% for rice PR. No. 106, dismissed the ground related to rice bran yield, and deleted the addition of Rs. 14,100 for unexplained cash credit.