1977 (9) TMI 61 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 17,550 relating to foodgrains business
2. Addition of Rs. 6,000 in sugar and rahardal account

Analysis:

Issue 1: Addition of Rs. 17,550 relating to foodgrains business
The appeal was against the order of the AAC, Dhanbad Range, regarding the assessment for the assessment year 1975-76. The primary contention was the addition of Rs. 17,550 concerning the foodgrains business of the assessee. The dispute arose from the damage of weight amounting to Rs. 107.47 quintals during railway transit, for which the assessee had not accounted. The AAC held that the deduction for this loss would be admissible when the claim is settled and the exact compensation amount is determined. The assessee argued that the addition was unjustified as the claim had not been finalized. The ITAT found that the assessee had filed necessary documents and claims against the railway authorities, indicating the receipt of damaged goods during the relevant accounting period. Citing legal precedents, including CIT vs. Tulsi Ram Karam Chand and Laxmi Ginning & Oil Mills vs. CIT Patiala, the ITAT concluded that the addition of Rs. 17,550 should not have been made, as the loss of stock-in-trade was a trading loss. Consequently, the ITAT deleted the addition of Rs. 17,550.

Issue 2: Addition of Rs. 6,000 in sugar and rahardal account
The second ground of appeal related to the addition of Rs. 6,000 in the sugar and rahardal account. The ITO had added this amount due to the low gross profit rate, which the assessee attributed to market fluctuations and government-imposed price restrictions. The ITAT noted that the ITO did not provide substantial evidence for the addition based on low gross profit. The assessee presented details of purchases, sales, and profit percentages to support their claim. Citing legal precedents such as M. Durai Raj vs. CIT Ernakulam and International Forest Co. vs. CIT Patiala, the ITAT held that no addition could be made solely on the basis of low gross profit. Consequently, the ITAT deleted the addition of Rs. 6,000 in the trading account related to rahardal and sugar. Additionally, the ITO was directed to modify the assessment order of the partners of the assessee, a registered firm. As a result, the appeal was allowed in full.