1993 (8) TMI 114 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 1,61,310 on account of assumed sale of 'chilka' (rice husk).
2. Marketability and valuation of 'chilka' in the assessment year 1982-83.
3. Comparison with other similar cases and consistency in tax treatment.

Detailed Analysis:

1. Addition of Rs. 1,61,310 on Account of Assumed Sale of 'Chilka':
The primary issue in this case revolves around the addition of Rs. 1,61,310 made by the Income Tax Officer (ITO) on account of the assumed sale of 'chilka' (rice husk) by the assessee, a registered firm engaged in the business of running a rice mill and commission agency. The ITO observed that the assessee did not show any sale of 'chilka' in its accounts, whereas similar businesses in the district had shown such sales. Consequently, the ITO added Rs. 1,61,310 to the assessee's income, estimating the sale of 16,131 quintals of 'chilka' at Rs. 10 per quintal.

The assessee contested this addition, arguing that 'chilka' had no market value during the relevant period and that it was either burnt in the factory's drier or removed from the premises upon request. The Appellate Assistant Commissioner (AAC) deleted the addition, finding no justification for it, as other similar cases did not reflect such sales, and the ITO's comparison was not tenable.

2. Marketability and Valuation of 'Chilka' in the Assessment Year 1982-83:
The assessee argued that 'chilka' had no market value during the assessment year 1982-83 and that it was only in subsequent years that its value was recognized. In support of this, the assessee pointed to the fact that no addition was made for the sale of 'chilka' in previous assessment years (1980-81 and 1981-82), and the sale of 'chilka' was accounted for in the books only in the assessment years 1983-84 and 1984-85.

The AAC agreed with the assessee's contention, noting that the ITO's reliance on a single case from the district was insufficient, especially when other similar cases did not show any sale of 'chilka'. The AAC concluded that there was no evidence to support the addition for the alleged sale of 'chilka' during the year under consideration.

3. Comparison with Other Similar Cases and Consistency in Tax Treatment:
The ITO's addition was based on a comparison with another case in the district where the sale of 'chilka' was shown. However, the AAC found that this comparison was not appropriate, as the ITO did not provide specific details of the other case, and other similar cases in the area did not show any sale of 'chilka'. The AAC emphasized the need for consistency in tax treatment and found no justification for the addition in the assessee's case.

Separate Judgments Delivered by the Judges:
The case was heard by a bench of three members, resulting in differing opinions.

Judicial Member's Opinion:
The Judicial Member partially agreed with the ITO's addition, acknowledging that 'chilka' had marketability and that some addition was warranted. He suggested that 1/3rd of the 'chilka' produced should be considered as self-consumed, and the remaining quantity should be valued at Rs. 7 per quintal, leading to a modified addition.

Accountant Member's Opinion:
The Accountant Member disagreed with the Judicial Member, arguing that the addition was based on conjectures and surmises without concrete evidence. He noted that the ITO failed to provide specific details or proof of actual sales of 'chilka' by the assessee. He emphasized that the assessee had shown a loss for the year under appeal, making it unlikely that the assessee would omit sales to reduce tax liability. He found no reason to interfere with the AAC's order deleting the addition.

Third Member's Opinion:
The Third Member agreed with the Accountant Member, concluding that there was no basis for sustaining the addition made by the ITO. He highlighted the lack of evidence and reliance on assumptions and suspicion by the ITO. The Third Member found that the AAC was justified in deleting the entire addition, as the ITO's conclusions were not fair or proper.

Final Decision:
The matter was referred to the President of the Income Tax Appellate Tribunal (ITAT) due to the difference in opinions. The Third Member's opinion prevailed, and the appeal was ultimately decided in favor of the assessee, with the addition of Rs. 1,61,310 being deleted.

Conclusion:
The judgment highlights the importance of concrete evidence and consistency in tax treatment. The addition made by the ITO was found to be based on assumptions and lacked sufficient justification, leading to its deletion. The decision underscores the need for tax authorities to rely on clear and comparable evidence when making additions to an assessee's income.