Income Tax Appeal No. 206 of 2011 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 206 of 2011 Date of decision: 20.7.2011 M/s. Tarlok Singh & Brothers through its partner Tarlok Singh --- Appellant Versus Commissioner of Income Tax, Jalandhar-II and others --- Respondents CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. G.R. Sethi, Advocate for the appellant. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the assessee against the order dated 5.2.2010, passed by the Income Tax Appellate Tribunal Amritsar Bench, Amritsar (in short “the Tribunal”) in ITA No. 07(ASR) 2010, relating to the assessment year 2005-06. 2. The following substantial questions of law have been claimed for determination of this Court: “(i) Having regard to the omission of Proviso to Section 145 (1) w.e.f. 1.4.1997 and on the true and correct interpretation of the substituted provisions contained in Sec. 145(3) whether under law any trading addition can Income Tax Appeal No. 206 of 2011 2 be made under the head Khudi Phak and Husk in absence of any explicit or implicit finding to the effect that the case falls within the purview of Section 145(3) of the Income Tax Act, 1961, more so when the Hon’ble Tribunal has recorded a finding that the books of account have not been rejected? (ii) On the facts and in the circumstances of the case and having regard to the sanctity of account books maintained in the normal course of business, is there any positive material or evidence on record? and if so what? to uphold and sustain additions in income under head Khudi Phak (not produced as per assessee’s version) and short fall in yield of paddy husk when not a solitary sale or purchase was found unrecorded in account books and account books were undisputedly not rejected and are the findings not perverse? (iii) On the facts and in the circumstances of the case is Hon’ble Tribunal correct in law in upholding additions of Rs. 2,00,313/- on account of expected yield and sale of Khudi Phak and Rs. 2,20,840/- for alleged short fall in yield of Paddy husk when Assessing Officer had not rejected books of account and no such sale was noticed outside the account? 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the appellant-assessee firm is engaged in the business of milling of paddy and production of rice and by-products on small scale. The assessing officer made trading addition of Rs. 13,08,280/- under various heads vide order dated 24.12.2007. Income Tax Appeal No. 206 of 2011 3 According to the appellant, it had been following a consistent method of accounting for the past many years and during the year in question also, it had kept its books of account and stock registers on the same pattern as in the preceding years. According to the assessee, the assessing officer arbitrarily made the trading addition of Rs. 2,61,375/- by applying a rice yield of 67% as against 65% shown by it. The assessing officer also made addition of Rs. 6,26,535/- on account of suppression in yield of paddy husk and of Rs. 1,27,541/- as suppression in paddy purchase for the difference in figures of purchase account of paddy. 4. The assessee filed appeal before the Commissioner of Income-tax (Appeals) {in short “the CIT(A)”}. The CIT(A), vide order dated 30.1.2002 while deleting the addition of Rs. 2,61,375/- made in respect of the alleged low yield of rice and purchase addition in paddy amounting to Rs. 1,27,541/-, sustained the addition of Khudi Phak to the extent of Rs. 2,00,313/- and the trading addition for alleged low yield of husk to the extent of Rs.2,20,840/-. The CIT(A() directed the assessing officer to re-compute interest as per law. 5. Both sides felt aggrieved and, thus, they filed their separate appeals before the Tribunal. The Tribunal by its order dated 5.2.2010 dismissed both the appeals. 6. Hence, this appeal at the instance of the assessee. 7. We have heard learned counsel for the appellant and have perused the record. 8. Learned counsel for the assessee submitted that the assessing officer had not rejected the books of account and in the absence thereof, recourse to determine the income on estimate basis was not justified. Reliance was placed on a judgment of the Delhi Income Tax Appeal No. 206 of 2011 4 High Court in Income Tax Appeal No. 26 of 2006, decided on 27.11.2008. It was further submitted that Special Leave Petition against the above order had been dismissed by the Supreme Court. 9. We have considered the submission of the learned counsel for the appellant. 10. The assessing officer while taking recourse to estimation for determination of income of the assessee noted that the assessee- firm had suppressed the sale of Khudi Phak to the extent of 3.5% of the paddy milled, and had also observed that the suppression of rice husk was the great source of income for the rice sheller and the sale of the husk had not been shown in the books of account. Once that was so, it could not be said that the books of account of the assessee had been accepted by the assessing officer. The CIT(A) while reducing the addition on account of production and sale of Khudi Phak had noted as under: “As regards the production and sale of khudi phak, as discussed earlier, the appellant’s explanation for not showing any yield of this by-product is not convincing at all. Since it is a normal by-product in the rice shelling mills, the appellant should have corroborated its claim of no yield of this by-product due to old machinery by comparison with mills of similar age and their yield. The assessee has come up belatedly with an explanation of mixing up of the khudi phak with husk. I do not accept this explanation as it is not corroborated by any evidence and is also entirely different from the claim made by the AO. Hence, notwithstanding the fact that the books of account of the appellant have not been rejected, I am of Income Tax Appeal No. 206 of 2011 5 the view that the assessee has not shown the production and sale of khudi phak produced by it, since it is a normal output of the rice sheller and no valid explanation has been submitted in this regard. However, I accept the alternative submissions of the assessee that yield of khudi phak may be taken at 2% of paddy milled instead of 3.5% estimated by the AO since in the decision in the case of Shankar Rice Company Kotkapura (supra), the yield of 2% khudi phak has been held to be reasonable by the jurisdictional ITAT (SB) (though varying percentages of both higher and lower, were placed before the Hon’ble Special Bench of ITAT) and the AO has also not given any comparable case during this period in this area showing higher yield of khudi phak to influence this decision. As regard the rate of Rs.350/- per qtl. applied by the AO, it is appellant’s contention that the same may be taken at Rs.205/- per qtl. which is 60% of that of rice bran. However, no reason for taking the sale price at 60% of that of rice bran has been submitted. The AO has also not commented on this contention in the remand report. In the case of Shankar Rice Company, Kotkapura (supra) the Hon’ble Special Bench reduced the rate of Rs.79/- per qtl. basing it on sale as per assessee’s bills. No such instance has been pointed out by the either party. The sale rate of rice bran has been shown at Rs.343/- per qtl. Since khudi phak would be sold at lower rate than that of rice bran, and in absence of any evidence, the rate is estimated at Rs.225/- per qtl. The Income Tax Appeal No. 206 of 2011 6 AO is directed to recalculate the addition on account of sale of khudi phak by estimating the yield rate and sale at 2% of paddy milled from both own purchase and from Govt. agencies and to value the same at Rs.225/- per qtl. The addition should be restricted accordingly.” 11. Further, the findings of CIT(A) in respect of suppression in yield of husk are recorded in para 6.3 of the order in the following terms:- “As regards suppression in yield of husk the appellant has claimed that a part of husk produced was consumed internally. Significantly, no such claim was made before the AO, which shows that the appellant’s stock records in respect of production, consumption and sale of husk are not reliable. The appellant has shown 8% production of husk. No records to show that more husk was actually produced and consumed internally has been produced. However, giving some credence to the appellant’s contention that a part of the husk has been consumed in dryer, I would estimate the consumption at 5% of the paddy milled. Thus, the assessee is given a benefit of 2226 qtl. of the husk as consumed internally. The production of husk is estimated at 18%. The short fall in husk will, therefore, work out to 2579 qtls. The AO applied the rate of Rs.125/- per qtl. on the sale of husk. The same is not backed by any evidence, though it is stated to be with the rates prevalent during March, 2005. However, the average rate declared by the assessee is Rs.85.63/- per qtl. which has not been disproved by the Income Tax Appeal No. 206 of 2011 7 AO. I, therefore, direct the AO to work out the addition on account of suppressed sale of husk at the rate of Rs.85.63/- per qtl. Ground No.5 is, thus, partly allowed.” 12. The Tribunal had affirmed the aforesaid findings of CIT(A) vide order dated 5.2.2010. 13. No perversity or illegality could be pointed out in the order of the Tribunal affirming the findings recorded by the CIT(A). Reliance placed on the judgment of the Delhi High Court does not come to the rescue of the assessee as the said case was adjudicated on individual fact situation involved therein. 14. In view of the above, no substantial question of law arises in this appeal for consideration by this Court. There is, thus, no merit in the appeal and the same is accordingly dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) July 20, 2011 ACTING CHIEF JUSTICE *rkmalik*