Income-tax---

----Reference---Additions to income on the basis of estimated sales-- Additions enhanced by CIT(A)---Tribunal deleting enhancement without considering facts---Question whether Tribunal was justified in deleting enhancement was a question of law---Indian come Tax Act, 1961, S 256(2).

The assessee filed its return for the assessment year 1988-89, declaring an income of Rs.36,980. A survey was conducted at the business premises of the assessee which showed that sales recorded in three bill books were not recorded in the, regular books of account. The Assessing Officer called upon the assessee to produce books of account. The assessee stated that the books were lost. The Assessing Officer did not accept this story. He, however did not determine sales on the basis of the entries made in the three bill books but on the basis of expenses incurred by the assessee in the manufacture of goods. The Assessing Officer held that the assessee had deliberately withheld the books and as such the sales shown at Rs.12,42,761 could not be held as the correct one. He also noticed that the assessee had shown sales at Rs.15,60,400 and gross profit at Rs.2,34,065 in the preceding assessment year. He further noticed that the assessee had shown higher fabrication charges as well as dyeing and finished charges. Accordingly, he worked out the sales at Rs.27,02,681 on the basis of the increased fabrication charges and at Rs.35,19,420 on the basis of increase shown by the assessee in dyeing and finishing charges. He worked out the average of the aforesaid sales at Rs.31,11,058 and the profits at Rs.4,66,607. Accordingly, an addition of Rs.2,80,393 was made. In the appeal filed by the assessee a notice for enhancement was issued to the assessee and by holding that the estimated sales were worth Rs.30 lakhs, the Commissioner of Income-tax (Appeals) made an addition of Rs.17,57,230. In the second appeal filed by the assessed the Tribunal confirmed the addition made by the Assessing Officer at Rs.2,80,393 but deleted the enhanced addition made by the Commissioner of Income-tax (Appeals). On an application to direct reference:

Held, that a bare perusal of the order of the Tribunal showed that it had not gone into the correctness of the enhanced additions made by the Commissioner of Income-tax (Appeals). Hence, the question whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition of Rs.17,57,239 enhanced by the Commissioner of Income-tax (Appeals) had to be referred to the High Court.

B.S. Gupta, Senior Advocate with Sanjay Barisal for Petitioner.

A.K. Mittal for Respondent.

JUDGMENT

G.S. SINGHVI, J.---In order to decide whether the question of law of which reference has been sought by the Revenue under section 256(2) of the Income Tax Act, 1961, arises for consideration by this Court, it is necessary to take cognizance of some facts.

For the assessment year 1988-89, the assessee filed its return on August '30, 1988, declaring an income of Rs.36,980. A survey was conducted at the business premises of the assessee on November 1, 1988, under section 133A of the Act. During the course of survey, it was noticed that sales recorded in the three bill books were not shown in the regular books of account. Shri Vijay Kumar, a manager of the firm, expressed his inability to explain why sales recorded in the three bill books have not been entered in the books of account. Sint. Paramjit Kaur, a partner of the assessee-firm, admitted that the sales noted in the books of account. Thereafter, the Assessing Officer, called upon the respondents to produce the books of account, who in turn conveyed to the petitioner that the same had been lost in transit while they were being brought by the manager in rickshaw. The Assessing Officer did not accept the version of the assessee and concluded that the story set up by the assessee was concocted and worked out the value of the unaccounted sales at Rs.4,12,030. He, however, did not determine sales on the

basis of the entries made in the three bill books but on the basis of expenses incurred by the assessee in the manufacture of goods. The Assessing Officer held that the assessee had deliberately withheld the books and as such the sales shown at Rs.12,42,761 could not be held as a correct one. He also noticed that the assessee had shown sales at Rs.15,60,400 and gross profit at Rs.2,34,065 in the preceding assessment year. He further noticed that the assessee had shown higher fabrication charges as well as dyeing and finishing charges. Accordingly, he worked out the sales at Rs.27,02,681 on the basis of the increased fabrication charges and at Rs.35,19,420 on the basis of increase shown by the assessee in dyeing and finishing charges. He worked out the average of the aforesaid sales at Rs.31,11,058 and the profit at Rs.4,66,607. Accordingly, an addition of Rs.2,80,393 was made.

In the appeal filed by the assessee a notice for enhancement was issued to the assessee and by holding that the estimated sales were worth Rs.30 lakhs, the Commissioner of Income-tax (Appeals) made an addition of Rs.17,57,230. In the second appeal filed by the assessee, the Income-tax Appellate Tribunal confirmed the addition made by the Assessing Officer at Rs.2,80,393 but deleted the enhanced addition made by the Commissioner of Income-tax (Appeals).

The application filed by the Revenue under section 256(1) of the Act has been dismissed by the Tribunal.

We have heard Shri B.S. Gupta, learned counsel for the Revenue, and Shri A.K. Mittal, learned counsel for the assessee, and have perused the order passed by the Tribunal. While dealing with the argument advanced on behalf of the assessee regarding the enhancement, the Tribunal has recorded the following finding:

"Ground No.3 relates to the addition of Rs.1,65,761 on account of variation in the accounts of certain parties. The Assessing Officer obtained copies of the assessee's account, as available in the books of certain parties. The assessee had shown the balance in respect of some parties and these were compared with the balance shown in the assessee's account, as existing in the books of account of other parties. The Assessing Officer at page 6 of the assessment order, gave details of those parties and noticed that there were variation in figures. In the case of seven creditors, the total amount of Rs.1,21,101 was arrived at on the basis of variation in two accounts. Similarly, in the case of two other creditors, the total variation was worked out at Rs.10,098. In the case of the certain debtors, variations were worked out, aggregating to Rs.95,732. The total amount representing variations was Rs.2,26,931. Since the assessee could not satisfactorily explain as to how the variations appeared in the two accounts, addition was made. The assessee's plea, however, was that in the case of Naurata Mech. Works, a certain machine was to be supplied to the assessee and it had already paid a sum of Rs.72,000, through the bank, to the said Naurata Mech. Works. The assessee had raised a loan from the bank and the order for the machine was placed. Since the machine was not supplied, the assessee had to receive the money back from Naurata Mach. Works. The assessee, thereafter, made a surrender of Rs.72,000, by making a credit entry in the profit and loss account. Certain other variations were also explained but, in the absence of

the books of account, the Assessing Officer declined to agree and proceeded to make the addition of Rs.2,26,931, on account of variation in balances."

A bare perusal of the above extracted portion of the order of the Tribunal shows that it has not at all gone into the correctness of the enhanced additions .made by the Commissioner of Income-tax (Appeals). Therefore, the question sought to be raised by the Revenue deserves to be adjudicated by this Court.

Accordingly, we direct the Income-tax Appellate Tribunal, Chandigarh Bench, to draw up a statement of case and refer the following question of law to the High Court:

"Whether, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal is right in law in deleting addition of Rs.17,57,239 enhanced by the learned Commissioner of Income-tax (Appeals)?"

The Tribunal is also directed to remit the record of the case to this Court.

M.B.A./25/FCOrder accordingly.