1989 (5) TMI 97 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of the addition of Rs. 1,89,000 on account of lesser yield of rice-bran.
2. Deletion of the addition of Rs. 98,000 on account of sale price of rice husk.
3. Confirmation of the disallowance of Rs. 7,550 paid as additional sales-tax.

Issue-wise Detailed Analysis:

1. Deletion of the addition of Rs. 1,89,000 on account of lesser yield of rice-bran:

The Revenue challenged the deletion of Rs. 1,89,000 added by the ITO due to the lesser yield of rice-bran. The ITO observed discrepancies in the yield of rice-bran from the paddy milled by the assessee and made an addition of Rs. 1,89,000. The assessee contested this addition, explaining that mistakes were made due to the accountant's inexperience and provided additional evidence. The CIT(A) noted that the ITO, after considering the evidence, suggested that only Rs. 25,140 should be upheld. The CIT(A) found no universal norm for the yield percentage and no evidence of unaccounted sales of rice-bran, leading to the deletion of the entire addition. The Tribunal agreed with the CIT(A), confirming that no addition was warranted as the ITO's basis lacked material evidence.

2. Deletion of the addition of Rs. 98,000 on account of sale price of rice husk:

The Revenue also contested the deletion of Rs. 98,000 added by the ITO for the sale price of rice husk. The ITO made two additions: Rs. 28,000 for 3,993 qtls. of husk not accounted for and Rs. 70,000 for husk yield from DFSC and PUNSUP paddy. The assessee argued that the husk was used in the dryer plant and not sold. The CIT(A) accepted the assessee's explanation, noting the lack of evidence for unaccounted sales and deleted the addition. The Tribunal, however, found that the husk had marketability and some receipt from its disposal was likely. Thus, it modified the CIT(A)'s finding, confirming a consolidated addition of Rs. 15,000 for the possible disposal of husk.

3. Confirmation of the disallowance of Rs. 7,550 paid as additional sales-tax:

The assessee objected to the confirmation of the disallowance of Rs. 7,550 paid as additional sales-tax. The ITO disallowed this amount, considering it a penalty. The CIT(A) upheld this view, treating it as a penalty for law infringement. The assessee argued that the payment was compensatory, not penal, citing relevant legal precedents. The Tribunal found that the payment under s. 11(8) of the Punjab General ST Act was compensatory, not penal, and thus an allowable business expense. It vacated the findings of the CIT(A) and the ITO, allowing the assessee's cross-objection.

Conclusion:

The Tribunal partially allowed the Revenue's appeal by confirming a consolidated addition of Rs. 15,000 for rice husk disposal and fully allowed the assessee's cross-objection regarding the additional sales-tax payment.