1993 (6) TMI 121 - AT - Income Tax

Issues Involved:
1. Deletion of addition of Rs. 1,92,43,626 by CIT(A)
2. Maintenance and verification of statutory registers
3. Use of plain water in the manufacturing process
4. Enquiries and evidence from external sources
5. Relevance of past assessments and consistency in accounting practices
6. Allegations of unaccounted purchases and sales
7. Rejection of books of accounts by the Assessing Officer

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 1,92,43,626 by CIT(A):
The CIT(A) deleted the addition made by the Assessing Officer, who had added Rs. 1,92,43,626 to the respondent's income on the grounds of purportedly unaccounted purchases. The CIT(A) found that the Assessing Officer misread the facts recorded in the appellant's books of accounts, particularly regarding the variety of tobacco used and the moisture content. The CIT(A) noted that the respondent was using Gujarati and Nepani tobacco with a maximum moisture content of 6.3%, and the use of plain water in the manufacturing process was justified and accepted by the partner, Shri Sri Gopal.

2. Maintenance and Verification of Statutory Registers:
The Assessing Officer noted that the statutory registers maintained under Excise laws did not bear any marks of inspection, which was disputed by the CIT(A). The CIT(A) stated that the registers had been checked in October 1984 and April 1985. The CIT(A) concluded that the maintenance of these registers as prescribed by law was sufficient, and the absence of inspection marks did not undermine their credibility.

3. Use of Plain Water in the Manufacturing Process:
The Assessing Officer questioned the use of plain water in the manufacturing process, citing external sources and test results indicating that the moisture content in Zarda did not exceed 15%. The respondent argued that plain water was used, and the difference in consumption figures was due to this. The CIT(A) accepted the respondent's explanation, noting that the use of water had been consistent in past assessments and was necessary for the manufacturing process.

4. Enquiries and Evidence from External Sources:
The Assessing Officer relied on enquiries from the Excise authorities and other manufacturers, which were not disclosed to the respondent. The CIT(A) criticized this approach, stating that the respondent was not given an opportunity to respond to these enquiries. The Tribunal agreed that such undisclosed enquiries could not be used to draw adverse inferences against the respondent.

5. Relevance of Past Assessments and Consistency in Accounting Practices:
The respondent maintained that no additions were made in past assessments on similar grounds, and the results declared in previous years were accepted. The CIT(A) supported this view, noting that the respondent's business had an accepted history, and the trading results for the assessment year under appeal were better than in previous years.

6. Allegations of Unaccounted Purchases and Sales:
The Assessing Officer alleged that the respondent made purchases outside the books of accounts and used these in the manufacturing process. The CIT(A) found no evidence to support this claim, noting that the respondent's books of accounts were thoroughly checked, and no defects or unvouched transactions were found. The Tribunal agreed that even if unaccounted purchases were made, they were used in manufacturing, and the corresponding addition would be offset by allowing a deduction for such consumption.

7. Rejection of Books of Accounts by the Assessing Officer:
The Tribunal noted that the Assessing Officer did not explicitly reject the respondent's books of accounts. The CIT(A) concluded that the rejection of results was not justified, as no defects, deficiencies, or omissions were found in the books of accounts, and the trading results were comparably better than in previous years.

Conclusion:
The Tribunal confirmed the order of the CIT(A), finding that the deletion of the addition was justified based on the facts and circumstances of the case. The appeal by the Revenue was dismissed, and the respondent's accounting practices and use of plain water in the manufacturing process were accepted as consistent and reasonable.

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