MS HARI INDUSTRIES V. ASSTT.COMMR.INCOME TAX

ITA/1/2004

AI Insights

The case involves M/s. Hari Industries, a partnership firm engaged in the production and sale of cedar wood oil, which appealed against the decision of the Income Tax Appellate Tribunal. The Tribunal had upheld the Assessing Officer's rejection of the firm's books of account and the addition of certain amounts to the firm's income based on discrepancies found during scrutiny. The main legal questions revolved around the justification for rejecting the books of account and the validity of the income additions based on low yield and unaccounted expenses. The High Court's decision focused on the procedural aspect of whether the Tribunal could address the issue of book rejection despite it not being explicitly raised in the revenue's appeal.

• Counselvise Citation: [2009] 140 COUNSELVISE.COM (IT) 748059 (HC-HIMACHAL_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 19-10-2009
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: VINAY KUTHIALA
• Assessee Lawyers: M M KHANNA; GOVERDHAN SHARMA
• Keywords: Book Rejection; Foreign Travel Expenses; Income Tax; Cedar Wood Oil; Yield
• Section: 145(2)

Judgement Text

"IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA I.T.A No. 1 of 2004. Reserved on: 6.10.2009 Date of decision: 19.10.2009 M/s.Hari Industries …. Appellant Versus Asstt.Commissioner of Income Tax ….. Respondent Coram:` The Hon’ble Mr. Justice Deepak Gupta, J. The Hon’ble Mr.Justice V.K.Ahuja, J. Whether approved for reporting? No For the appellant: Mr.M.M.Khanna, Sr.Advocate with Mr.Goverdhan Sharma, Advocate. For the respondent: Mr.Vinay Kuthiala, Advocate. _____________________________________________________ Deepak Gupta, J.(Oral) This appeal has been admitted on the following questions of law:- “i) Whether the Hon’ble Tribunal was justified in coming to the conclusion that book result of the assessee are liable to be rejected inspite of the fact that the respondent department has not taken any ground in appeal before the Hon’ble Tribunal that the Ld.CIT(A) was not justified in arriving at the conclusion that no case 2 is made out for rejection of account u/s.145(2)? ii) Whether the Hon’ble Tribunal was legally justified in arriving at the conclusion that the yield shown by the assessee is definitely low inspite of the supervision and inspection by two Government department, i.e., Forest Department and Industries Department by whom the periodical checks were being conducted and certified to be as such as shown by the assessee? iii) Whether the assessee was right in using the high yield stumps during the earlier period of the contract and the stumps which contained low oil at the later time because of his business interest and the Ld.ITAT not was right in arriving at the conclusion that there is low yield because different period showed different yield? iv) Whether the Ld.ITAT was legally correct in partly disallowing the expenses with respect to foreign tour though the same had generated the business in foreign?” Briefly stated the facts of the case are that the assessee-M/s.Hari Industries which is a partnership firm is engaged in the business of production and sale of cedar wood oil. For the assessment year 1993-94, the assessee 3 filed its return declaring an income of Rs.7,49, 760/-. The case of the assessee was taken up for the scrutiny. The Assessing Officer found that there were discrepancies in the books of account maintained by the assessee and proceeded to assess the income on the best judgment assignment. The Assessing Officer made addition of Rs.2,84,832/-on account of sale of cedar wood oil on the basis of the consumption of the packing material, i.e., drums used. Another amount of Rs.14,02,080/- was added to the income of the assessee on the ground that the drums which had been purchased had not been shown in the account and the asseessee must have used these drums for selling the oil. Addition of Rs.13,22,292/- was made on the basis that the assessee in the year in question had shown a percentage yield 1.6 %. There was an abnormal fall in the yield since in the previous year percentage oil yield from the cedar wood was more than 4.6%. The Assessing Officer held that the yield percentage could not have been less than 4% and thereby made addition of Rs.13,22,292/-. Some other additions on account of foreign travel expenses was also made. 4 The assessee filed an appeal before the Commissioner, Income Tax, Shimla. The appeal was allowed in respect of the aforesaid three items and in respect of foreign travel, the disallowance on account of personal expenses were ordered to be restricted to 30,000/-. The revenue filed an appeal before the Income Tax Appellate Tribunal. The Tribunal upheld the order of the CIT (Appeals) where she had disallowed the addition of Rs.2,84,832/-, Rs.14,02,080/- and Rs.7,49,475/-. However, it set-aside the order of the CIT(A) in respect of the addition of Rs.13,22,292/- on account of low yield of cedar wood oil and affirmed the order of the Assessing Officer. In respect of the foreign travel, dis-allowance was further reduced to Rs.20,300/-. Hence the present appeal. The main ground urged on behalf of the assessee is that in the grounds of appeal filed by the revenue before the Tribunal, no specific ground was raised that the Assessing Officer was justified in rejecting the books of account of the assessee. From the orders which are on the file, it is apparent that the Assessing Officer had come to the conclusion that the Assessee had not prepared proper books of account and had rejected the books of account of the company. The CIT(A) held 5 that the Assessing Officer was not justified in rejecting the accounts of the assessee. Sh.M.M.Khhana, learned senior counsel submits that in view of the fact that no specific ground in this regard was raised in the appeal, the Tribunal could not have permitted the revenue to challenge the books of account of the assessee and the finding of the learned Tribunal to this extent is illegal. We have gone through the grounds of the appeal filed by the revenue and find that the same are not very happily worded. The only ground taken is that the CIT(Appeals) has erred in deleting the addition of Rs.13,22,292/- on account of low yield of cedar wood oil. It is true that no specific ground has been taken challenging the finding of the CIT(A) that the books of account had wrongly been rejected by the assessee, however, from the order of the Tribunal, we find that the assessee was well aware of this plea which was argued at length before the learned Tribunal. The Tribunal has made reference to the arguments raised on behalf of the revenue as well as the assessee and it is apparent that one of the main arguments raised was whether the books of account could be rejected or not? In fact, according to the 6 Tribunal, the first issue to be decided was whether the Assessing Officer was justified in rejecting the books of account. After considering the entire material, the Tribunal came to the conclusion that the Assessing Officer was justified in rejecting the books of account. It has also given reasons for the same. We, therefore, cannot accept the argument of Sh.Khanna that merely because specific plea in this regard had not been raised, revenue cannot be permitted to raise this ground in the appeal. Accordingly, we answer question No.1 in favour of the revenue and against the assessee. As far as questions No.2 to 4 are concerned, these are pure questions of fact and no substantial question of law is involved. Therefore, these questions need not be answered. The appeal is disposed of in the aforesaid terms. No order as to costs. ( Deepak Gupta ) Judge October 19 , 2009 (V.K.Ahuja) (m) Judge "