1976 (8) TMI 90 - AT - Income Tax

Issues Involved:
1. Additions in the rice trading account for assessment years 1971-72, 1972-73, and 1973-74.
2. Application of Section 145 of the Income-tax Act, 1961.
3. Addition in the mustard oil account for the assessment year 1972-73.
4. Disallowance of expenses in Basa Kharach, gaddi, fooding, general, and machinery expenses.

Detailed Analysis:

1. Additions in the Rice Trading Account:

Assessment Year 1971-72:
The Income Tax Officer (ITO) found the yield of 61% from 17,515.30 quintals of paddy to be low compared to the standard 64% yield in the circle. Due to the lack of qualitative stock accounts and varying purchase dates, the ITO added Rs. 50,000 to the gross profit. The Appellate Assistant Commissioner (AAC) reduced this addition to Rs. 31,500, considering a 62.5% yield rate reasonable based on previous Tribunal orders.

Assessment Year 1972-73:
The ITO considered the yield of 63% from 19,467 quintals of paddy to be low and added Rs. 27,000. The AAC deleted this addition, accepting the yield rate and gross profit shown by the assessee as fair, considering the majority of paddy was purchased during the harvesting season.

Assessment Year 1973-74:
The ITO found the gross profit rate of 6.7% on sales of Rs. 22,06,201 to be low and made an addition of Rs. 70,000. The AAC reduced this to Rs. 20,000, acknowledging the special circumstance of levy rice supply to the government, which resulted in a loss of Rs. 39,102. The Tribunal deleted the entire Rs. 20,000 addition, finding the gross profit rate reasonable when including the sale proceeds of bran.

2. Application of Section 145 of the Income-tax Act, 1961:
The Tribunal upheld the AAC's adoption of a 62.5% yield rate for the assessment years 1971-72, 1972-73, and 1973-74, based on the Tribunal's previous order for the assessment year 1969-70. The Tribunal found the AAC's decisions justified and dismissed the department's appeals, confirming that the proviso to Section 145(1) was applicable due to the defects in the assessee's accounts.

3. Addition in the Mustard Oil Account for Assessment Year 1972-73:
The ITO found the yield of 34.5% low and added Rs. 4,000. The AAC reduced this addition to Rs. 2,000, considering the gross profit rate of 0.05% low but the addition excessive. The Tribunal upheld the AAC's decision, finding it reasonable.

4. Disallowance of Expenses:

Basa Kharach and Gaddi Expenses:
The ITO disallowed Rs. 1,200 out of gaddi expenses and Rs. 750 out of fooding expenses as unvouched and unverifiable. The AAC sustained the gaddi expense disallowance but the Tribunal reduced it to Rs. 700, finding the disallowance excessive. The fooding expense disallowance was not contested before the AAC and thus not considered by the Tribunal.

General and Machinery Expenses:
The ITO disallowed Rs. 1,255 out of general expenses, Rs. 1,000 out of Basa Kharach, and Rs. 2,000 out of machinery expenses. The AAC deleted the machinery expense disallowance but sustained the others. The Tribunal reduced the disallowances to Rs. 500 each for general and shop expenses, finding them excessive.

Conclusion:
The Tribunal dismissed the department's appeals (ITA Nos. 1502, 1503, and 1504 of 1975-76) and the assessee's appeal (ITA No. 1546 of 1975-76). Cross Objections Nos. 85 and 86 of 1975-76 were allowed in part, providing partial relief to the assessee.

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