1992 (11) TMI 127 - AT - Income Tax

Summary

Issues Involved:
1. Omission to record consignment sales.
2. Disallowance of driage.

Detailed Analysis:

1. Omission to Record Consignment Sales:
The appellant, a firm dealing primarily in arecanut, was found by the Asstt. C.I.T. to have omitted recording consignment sales in its accounts for the year ending 31-3-1987. The Assessing Officer observed that the driage claimed was high and that the closing stock was significantly larger compared to sales. He discovered that the consignees, Kerala Supari Centre and M/s Mohd. Ibrahim & Co., had sold the goods before the accounting year ended, but the sales were not recorded by the appellant. The appellant explained that the sale pattikas were received only in the subsequent accounting year and thus recorded then. The Asstt. C.I.T. rejected this explanation, stating that the appellant followed a mercantile system of accounting and should have recorded the transactions when they occurred. He recalculated the trading account, adding Rs. 30,40,641 to the income. The CIT(Appeals) upheld this addition, citing the Supreme Court decision in CIT v. British Paints India Ltd., suggesting that the method adopted by the appellant was a device to evade tax.

On appeal, the appellant argued that it consistently recorded sales based on the receipt of sale pattikas, a practice accepted in previous years and supported by accounting texts. The Tribunal noted that the appellant followed a mixed system of accounting and that income from consignment sales should be recognized only upon receipt of sale pattikas. The Tribunal found that the Assessing Officer and CIT(Appeals) erred in not recognizing the appellant's accounting method. The Tribunal decided that a 50% margin should be allowed for delays in receiving sale pattikas and directed the Income-tax Officer to recast the trading account accordingly.

2. Disallowance of Driage:
The Asstt. C.I.T. disallowed Rs. 1,15,453 on account of excessive driage, noting an unreasonable driage of 85 quintals recorded on 1-4-1986. The CIT(Appeals) upheld this disallowance. The appellant contended that the overall driage percentage was reasonable and that the 85 quintals recorded in April 1986 was a clerical mistake. The Tribunal reviewed the stock register and found the driage percentage reasonable overall. It allowed 40% of the 85 quintals as driage, granting partial relief to the appellant.

Conclusion:
The Tribunal partially allowed the appeal, directing the recasting of the trading account with a 50% margin for delayed sale pattikas and granting partial relief on the disallowance of driage.