Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Method of accounting‑‑‑Mixed system of cash and mercantile‑‑‑Consignment sales accounted on basis of receipt of sale pattials from consignees‑‑‑Consistent method of accounting followed‑‑ Tribunal holding that margin of 50 per cent. can be allowed for delay in receipt of sale pattials from consignees‑‑‑Balance alone to be taken for computation of income‑‑‑Conclusions of Tribunal finding of fact‑‑‑No interference called for in reference‑‑‑Indian Income Tax Act, 1961, 5.256.

The assessee was a registered firm dealing in arecanuts and other agricultural produce like pepper, rubber seeds, copra, etc. Consignment sales were accounted for by the assessee from year to year on the basis of receipt of sale pattials from the consignees. The Assessing Officer did not accept this method and for the assessment year 1987‑88 he enhanced the assessee's consignment sales by including the sales in the trading account and on that basis the gross profit arrived at was a higher figure. The Commissioner of Income‑tax (Appeals) confirmed the addition. The Tribunal took into account the consistent method of accounting followed by the assessee and directed 50 per cent. of the sales to be considered for the assessment year 1987‑88. On a reference:

that the system of accounting followed by the assessee was not strictly the mercantile system or cash system. It was a mixed system. The Tribunal recorded a finding on the facts that a reasonable margin of time was necessary for the patties to reach the assessee and accordingly a margin of 50 per cent. attributable to the time gap was fixed. The, conclusions were essentially of fact and could not be said to be perverse or based on surmises or conjectures. Hence, no question of law arose for consideration.

P. Balachandran for the Assessee.

P.K.R. Memon and George K. George for the Commissioner.

JUDGMENT

ARIJIT PASSAYAT, C.J.‑‑‑Heard.

These two income‑tax references are interlinked and are disposed of by this common judgment. Pursuant to the directions given by this Court in two original petitions filed by the assessee and the Revenue (O.P. Nos.17247 of 1993 and 2486 of 1994), the following questions have been referred for opinion of this Court under section 256(2) of the Income Tax Act, 1961 (in short "the Act"), by the Income‑tax Appellate Tribunal, Cochin Bench (in short "the Tribunal"):

At the instance of the Revenue:

"(1)Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact, and whether it had any material in holding that the margin of 50 per cent. can be allowed for the delay in receipt of the sale pattials from the consignee and the balance alone need be taken for the purpose of computing the income?

(2)Whether, on the facts and in the circumstances of the case and after having found that the pattials were prepared in a whimsical manner as and when chosen by the consignee and that it appeared to have been got up at a stretch, whether the Tribunal was justified in fixing the margin at 50 per cent?"

At the instance of the assessee:

"(1)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the income on 50 per cent. of the consignment sales with Kerala Supari Centre in respect of which pattials are claimed to have been received by the assessee in subsequent years, are to be included in the assessment year 1987‑88?

(2)Whether, on the facts and in the circumstances of the case, the Appellate Tribune had any material in holding that 50 per cent. of the impugned consignment sales are to be included in the assessment year 1987‑88?"

The dispute relates to the assessment year 1987‑88. The assessee is a registered firm dealing in arecanuts and other allied agricultural produces like pepper, rubber seeds, copra, etc. Its main business is in arecanuts sent on consignment basis outside Kerala. For the accounting year ended on March 31, 1987, relevant to the assessment year 1987‑88, the assessee filed its return on December 4, 1987, admitting a total income of Rs. 1,03,644. From the accounts it was revealed that total sale of arecanuts effected during the period was for a sale value of Rs.44,02,378. Consignment sales were accounted for by the assessee from year to year on the basis of receipt of sale pattials from the consignees. The Assessing Officer did not accept the method adopted by the assessee and was of the view that the assessee's consignment sales should be enhanced in the following manners.

The assessee's claim before the Assessing Officer was that sale pattials in respect of the above sales were received in the subsequent years and consistent with the method adopted by it from year to year, sales were accounted in the accounting years corresponding to the assessment years 1988‑89 and 1989‑90, respectively, in respect of the assessee's consignees. The sales were included in the trading account and on that basis the gross profit was arrived at Rs. 54,82,00I by the Assessing Officer. This resulted in addition of Rs. 30,40,601 to the income disclosed by the assessee.

In appeal the Commissioner of Income‑tax (Appeals) (in short "the CIT(A)"), confirmed the addition. In second appeal, the Tribunal held that considering the method of accounting consistently followed and taking into account the factual position 50 per cent. of the sales was to be considered for the concerned assessment year. Accordingly, direction was given to take into account the correct figure.

Both the Revenue and the assessee assailed the conclusion and filed applications under section 2560) of the Act which were rejected. Thereafter, this Court was moved under section 256(2) of the Act and the directions were given as afore stated.

Learned counsel for the Revenue submitted that the concept of income due was lost sight of by the Tribunal. It was, according to him, inconceivable that the sale pattials were not received for such a long time as contended by the assessee, particularly in view of the fact that some of the partners were common to the assessee and the consignee Learned counsel for the sssessee submitted that the undisputed position being that the method of accounting as adopted for the previous period was being followed, there was no scope for making any addition. As and when the sale pattials were received, they were duly reflected in the accounts and income returns were filed.

It is to be noted that the system of accounting followed by the assessee was not strictly the mercantile system or cash system. It was a mixed system. Though it is trite law that profits of a particular year have to be determined in that year and if the accounts are not reliable, resort can be made to section 145(2) of the Act, yet it would depend upon the factual position. The Tribunal analyzed the materials on record at length. It directed the filing of the original sale pattials for verification and also noticed the dates on which the said pattials were received. This aspect has been analyzed by the Tribunal in its judgment in paragraphs 23 and 24. After having analysed the factual position and taking note of the peculiar features existing, more particularly the details contained in the sale pattials, it was found appropriate to direct that 50 per cent. of the sale price can be allowed for the delayed receipt of sale pattials from the consignees and the balance shall be taken for the purpose of computing the income. It noted that the sale pattials contained various information s about date of arrival of goods, mode of transportation with reference to lorry number, date of sale, bill number, quantity in bags, net weight, rate at which the sales were made and the total price. Packing charges and incidental charges were added to the sale amounts in order to arrive at the total sale amount. As against such sales noted in the sale pattials, details of the expenditure incurred under different heads like commission, brokerage, labour charges, insurance, godown charges, etc., were indicated. Pattials also contained the details of remittances by hundi, T.T. or cash with relevant particulars. All these go to show that some time was necessary for preparation of the sale pattials to be furnished to the principal, i.e., the assessee. The Tribunal recorded a finding on facts that reasonable margin of time was necessary for the pattials to reach the assessee. That being the conclusion, the margin of 50 per cent. attributable to the time gap was fixed. The conclusions are essentially on facts and cannot be said to be perverse or based on surmises or conjectures. The peculiar features of the business transactions were noticed by the Tribunal to arrive at its conclusions. In our considered opinion, the conclusions being essentially of fact, no question of law arises out of the order of the Tribunal. Accordingly, we declined to answer the questions referred.

The references are disposed of accordingly.

M.B.A./687/FC

Order accordingly.