2014 (3) TMI 111 - HC - Income Tax

Validity of order Addition made on account of excess wastage - Whether without rejection of books and accounts, the results arrived at by the assessee based on his books can be ignored Held that - The claim of wastage of 2.7% could not be termed excessive when wastage to the extent of 4.4% had been allowed in the assessment year 1988-89 - the trading results are being supported by complete stock register and no defects have been pointed out in the said register - the addition made on this account is deleted as claim of wastage is in accordance with the past history of the case the entire matter is required to be tested on factual matrix then, there is nothing in the order of CIT(A) which could be assailed on the fact based situation or on any principle of law - order of the Tribunal rather is not based on any sound parameters and runs contrary to the entries in the stock register and other books of accounts, veracity of which entries is not questioned by the revenue even a little decided in favour of Assessee.

Issues:
1. Challenge to the order passed by the Income Tax Appellate Tribunal for the assessment year 1990-91.
2. Legality of the additions made on account of excess wastage without discrepancies in the Books of Accounts.
3. Legality of confirmation of additions based on presumptions and conjectures without material evidence.
4. Legality of confirmation of additions without recourse to proviso to Section 145(1) of the Income Tax Act, 1961.
5. Justification of making additions on account of excess wastage without supporting evidence.

Analysis:
1. The appellant challenged the order of the Income Tax Appellate Tribunal regarding the addition of Rs.1,22,547 in the income for the assessment year 1990-91. The Tribunal allowed wastage at 2% instead of the 2.7% claimed by the assessee, leading to a dispute over the quantification of wastage.
2. The appellant argued that wastage figures depend on various variables and are recorded in the stock register based on actual production and wastage. The revenue contended that due to large-scale variation in wastage output compared to previous years, the Tribunal averaged the figure at 2%, rejecting the assessee's claim of 2.7% wastage.
3. The Court noted that the books of accounts, including the stock register, were not questioned or rejected under Section 145 of the Act. The revenue authorities substituted their judgment for the actual figures of wastage without any explanation, even though the wastage had been consistently calculated based on entries in the stock register and other books of accounts.
4. The Court emphasized that without doubts regarding the genuineness of entries in the stock register and other books of accounts, the Tribunal's decision to reduce the claimed wastage from 2.7% to 2% lacked a sound basis or formula. The Tribunal's approach was criticized for overgeneralizing the wastage quantity based on past assessments without questioning the accuracy of the current entries.
5. Ultimately, the Court found merit in the appeal and ruled in favor of the assessee, highlighting that the Commissioner of Income Tax (Appeals) had made a reasonable decision based on past history and supporting evidence. The Tribunal's order was deemed incorrect as it did not align with the entries in the stock register and other books of accounts, which were not disputed by the revenue authorities.

This detailed analysis of the judgment showcases the legal intricacies involved in challenging the addition of wastage in the income assessment and the importance of maintaining accurate records and justifying any deviations in figures.

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