1974 (3) TMI 1 - HC - Income Tax

Assessment of percentage of sugar produced without disclosing the reason for it and rejecting the figure given by the assessee - Whether, on the facts and in the circumstances of the case, the books of account were rightly rejected under section 13 of the Indian Income-tax Act, 1922, and the addition of Rs. 2,25,000 was rightly sustained. Question answered in the negative in favour of the assessee and against the revenue.

Summary

Issues Involved:
1. Whether the books of account were rightly rejected under section 13 of the Indian Income-tax Act, 1922.
2. Whether the addition of Rs. 2,25,000 was rightly sustained.

Issue-Wise Detailed Analysis:

1. Rejection of Books of Account:
The Tribunal and the Income-tax Officer (ITO) rejected the books of account of the assessee, M/s. Motipur Sugar Factory (P.) Ltd., under section 13 of the Indian Income-tax Act, 1922. The ITO made an addition of Rs. 2,25,000 to the total income on the grounds that the production of sugar was not correctly disclosed, suspecting either suppression of production or inflation of sugarcane purchases. He ruled out suppression due to excise control and inferred illusory purchases from the non-production of "parchas." The Tribunal supported this view, suggesting some sugarcane might have been diverted for jaggery production. However, the High Court found no material evidence for this diversion, deeming the Tribunal's finding as based on surmises and conjectures. The High Court held that the rejection of the books of account was not justified as the parchas were not relevant for verifying actual sugarcane purchases.

2. Addition of Rs. 2,25,000:
The ITO and Tribunal compared the recovery rates of sugar from two mills in North Bihar, which were higher than the assessee's. The names of these mills were not disclosed to the assessee, violating natural justice principles. The High Court noted that differences in sugar recovery rates even within the same area are common, as supported by the Supreme Court's observation in Oudh Sugar Mills Ltd. v. Union of India. The High Court found that the Tribunal's reliance on these undisclosed mills was invalid and not binding. Additionally, the Tribunal's adverse inference from non-production of parchas was deemed illegal as these documents did not contain the actual weight of sugarcane. The High Court concluded that the ITO and Tribunal had no valid grounds for sustaining the addition of Rs. 2,25,000.

Conclusion:
The High Court answered the question in the negative, ruling that the books of accounts were not rightly rejected under section 13 and the addition of Rs. 2,25,000 was not rightly sustained. The reference was answered in favor of the assessee, with costs awarded to the assessee.