1994 (2) TMI 94 - AT - Income Tax

Summary

Issues Involved:
1. Validity of subjecting the assessee's case to selected scrutiny under s. 143(2)(b) of the IT Act.
2. Challenge to the entire assessment framed by the ITO, including the addition of Rs. 4,85,981 for unaccounted purchases.
3. Preparation of the trading and P&L account and estimation of gross and net profit by the ITO.
4. Computation of closing stock of rice bran oil and mobile oil and grease.

Issue-wise Detailed Analysis:

1. Validity of Subjecting the Assessee's Case to Selected Scrutiny:

The assessee challenged the basis of subjecting its case to selected scrutiny by issuing a notice under s. 143(2)(b). The tribunal found no merit in this ground, stating that it was within the ITO's authority to select any case for scrutiny under s. 143(3) by issuing a notice under s. 143(2)(b). The tribunal concluded that there was no procedural or legal defect in the method adopted by the ITO and held that the ITO acted correctly in completing the assessment under s. 143(3) after issuing a valid notice under s. 143(2)(b).

2. Challenge to the Entire Assessment Including the Addition of Rs. 4,85,981:

The assessee contested the entire assessment framed by the ITO, particularly the addition of Rs. 4,85,981 for unaccounted purchases. The ITO had concluded that the sales figures in certain months far exceeded the aggregate of opening stock and purchases, leading to the assumption of unaccounted purchases. The tribunal considered hypothetical cases to demonstrate that such a separate addition was unwarranted. It concluded that since the ITO assumed all sales were accounted for and only part of the purchases were outside the books, there was no scope for a separate addition for unaccounted purchases. The tribunal deleted the addition of Rs. 4,85,981, finding it unwarranted.

3. Preparation of the Trading and P&L Account and Estimation of Gross and Net Profit:

The assessee challenged the preparation of the trading and P&L account and the estimation of gross and net profit by the ITO. The ITO reconstructed the trading and P&L account based on available materials, including figures from the sales-tax assessment. The tribunal found that the ITO acted correctly in reconstructing the accounts and working on the figures of purchases and sales as adopted in the sales-tax assessment. Despite the higher rates of gross profit (24%) and net profit (11%) in the reconstructed accounts, the tribunal concluded that the ITO's estimation was reasonable given the circumstances, including the non-cooperation of the assessee in producing required documents.

4. Computation of Closing Stock of Rice Bran Oil and Mobile Oil and Grease:

The assessee also challenged the computation of closing stock of rice bran oil and mobile oil and grease. The ITO had estimated the closing stock based on figures found in the purchase invoices file during a survey. The tribunal found that the ITO acted correctly in estimating the closing stock based on available materials. It noted that the higher gross and net profit rates were partly due to the high figure of closing stock of rice bran oil, for which the assessee would get due credit in the succeeding year. The tribunal approved the ITO's reconstructed P&L account and estimation of net profit, subject to the reliefs given by the CIT(A) and the tribunal itself.

Conclusion:

In conclusion, the tribunal partially allowed the appeal by deleting the addition of Rs. 4,85,981 for unaccounted purchases but upheld the ITO's reconstructed trading and P&L account and the estimation of net profit, considering them reasonable under the circumstances. The appeal was allowed to the extent of deleting the unwarranted addition.