2010 (9) TMI 93 - HC - Income Tax

Best Judgment Assessment - Section 144 and section 145 -Mis-declaration of profit - consuming high quantity of input the assessee has manufactured larger number of output, did not account for the same in the books of accounts - ITAT directed to disallow cost of the excess consumption of various raw materials except tobacco - consumption of Biri leaves depends on quality and size of the leaves and wastage in handing. When the leaves are dried they become bittle. Some time due to the moisture or other factors the quality of the leaves changes Held that - there cannot by a standard formula for the consumption of Biri leaves viz-a-viz numbers of Biri manufactured - questions of law as raised in the appeal does not arise for consideration of the court. Procedure under Section 144 was not required to be followed. In the matter of reassessment, after revised return, when the appellant had notice of the proceedings and was participating with the appeal decided on the ground of consumption of bidi leaves to support the turn over, no further notice procedure was to be followed.

Summary

Issues:
Income tax appeal under Section 260-A of the Income Tax Act, 1961 relating to assessment year 1983-84. Allegation of required procedure under Section 145 for best judgment assessment and addition of Rs.1 lac to gross turnover of 'bidi' manufactured out of 'tendu' leaves.

Analysis:
The appellant raised two questions of law in the appeal. The first question pertained to the addition of Rs.1,00,000 on account of excess consumption of biri leaves, arguing that it was based on imagination and surmises, contrary to ITAT findings, and not legally justified. The second question challenged the inferences drawn by the ITAT regarding the applicability of Section 145 to the case, the manufacturing of a larger number of biris due to high consumption of biri leaves, and the alleged undisclosed profit, claiming these inferences were based on conjectures and surmises without evidence.

Upon reviewing the assessment, appellate orders, and ITAT judgment, it was noted that the original assessment order was set aside by CIT (A), and a revised return declared a higher total income. The ITAT allowed the assessee's contention on excess consumption of tobacco but directed to disallow costs of excess consumption of other raw materials. The CIT (A) partially allowed the appeal, emphasizing the variability in biri leaves consumption due to quality and size, leading to the deletion of additions on excess consumption of biri leaves. However, the ITAT added Rs.1 lac due to the absence of uniform consumption of tendu leaves, applying Section 145.

The court concluded that the procedure under Section 144 was not required to be followed post-revised return and notice of proceedings, especially when the appellant participated in the appeal regarding the consumption of biri leaves. It was held that the questions of law raised did not warrant consideration, leading to the dismissal of the income tax appeal.

In summary, the judgment addressed the issues of best judgment assessment under Section 145, challenges to additions based on consumption of biri leaves, and the application of legal procedures in the appeal process, ultimately resulting in the dismissal of the income tax appeal.