1988 (11) TMI 130 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 1,97,475 made as undisclosed sales.
2. Deletion of addition of Rs. 30,000 made on account of job work and embroidery charges not disclosed.

Detailed Analysis:

1. Deletion of Addition of Rs. 1,97,475 as Undisclosed Sales:
The primary issue was whether the Commissioner (A) was justified in deleting the addition of Rs. 1,97,475 made by the IAC as undisclosed sales. The IAC had not accepted the explanation provided by the assessee regarding the shortage of 15,660 meters of cloth. The assessee claimed that this shortage was due to the consumption of cloth in preparing sarees, suits, dupattas, and lehangas. The IAC, however, estimated lower consumption rates for these items based on comparable cases and concluded that there was a deficit of 3,382 meters of cloth, which he treated as undisclosed sales, leading to an addition of Rs. 1,97,475.

The Commissioner (A) reviewed the matter in detail and found that the consumption rates estimated by the IAC were not accurate. After considering the submissions and conducting an inspection of the business premises, the Commissioner (A) concluded that the consumption of cloth as disclosed by the assessee was more or less accurate. The Commissioner (A) made a slight variation and arrived at a shortage of 1,209 meters, which he deemed reasonable given the magnitude of the business. This shortage was attributed to sample preparation, tear, pilferage, and measurement discrepancies. The Commissioner (A) found that the shortage of 2.18% was within acceptable limits and thus deleted the addition.

Upon appeal, the Tribunal conducted its own inspection and found that the estimates made by the IAC were flawed. The Tribunal confirmed that the consumption rates provided by the assessee were reasonable and supported by the evidence gathered during the inspection. The Tribunal noted that the IAC's reliance on comparable cases was not justified, as the specific conditions and practices of the assessee's business were not adequately considered. The Tribunal upheld the Commissioner (A)'s decision to delete the addition of Rs. 1,97,475.

2. Deletion of Addition of Rs. 30,000 on Account of Job Work and Embroidery Charges:
The second issue was the deletion of the addition of Rs. 30,000 made by the IAC for job work and embroidery charges not disclosed. The IAC had estimated this addition based on the assumption that there was a possibility of revenue leakage due to insufficient information linking order forms to sales. The IAC added Rs. 20,000 for embroidery charges and Rs. 10,000 for advances received from customers for orders, which he believed were not fully accounted for.

The Commissioner (A) rejected the IAC's reasoning, stating that the IAC had not provided any concrete evidence to support the addition. The Commissioner (A) emphasized that the books of accounts were in the possession of the IAC, and no specific instances of unaccounted sales were identified. The Commissioner (A) concluded that the addition was based on mere suspicion and lacked material evidence. Therefore, he deleted the entire addition of Rs. 30,000.

The Tribunal agreed with the Commissioner (A)'s assessment, noting that the IAC had failed to present any material evidence to justify the addition. The Tribunal found that the receipts from job work were minimal compared to the overall turnover and that it was unlikely the assessee would suppress such income. The Tribunal upheld the Commissioner (A)'s decision to delete the addition of Rs. 30,000.

Conclusion:
The Tribunal dismissed the appeal, upholding the Commissioner (A)'s decision to delete the additions of Rs. 1,97,475 and Rs. 30,000. The Tribunal found that the consumption rates and explanations provided by the assessee were reasonable and supported by evidence, and that the IAC's estimates were flawed and unsupported by material evidence.