Commissioner of Income Tax vs Patel Brokers

B.R. Arora, J.—The revenue, by this application u/s 256(2) of the income tax Act, 1961 (''the Act'') has prayed that the Tribunal, Jaipur Bench, may be directed to state the case and refer the following question of law for the opinion of the High Court: Whether, on the facts and in the circumstances of the case, the ITAT is legally justified in deleting the addition of Rs. 80,317 and thereby confirming that the system employed by the assessee gives true and correct picture of its income ?

The assessee-firm is a commission agent. For the assessment year 1990- 91 the assessee filed the return for the income of Rs. 83,256. The ITO Chittorgarh, while assessing the assessee, made an addition of Rs. 80,317 in the Commission Account as well as Rs. 40,115 as the undisclosed income in the shape of debtors. Dissatisfied with the order passed by the ITO Chittorgarh, the assessee preferred an appeal before the Commissioner (Appeals), Jodhpur. The Commissioner (Appeals), Jodhpur, affirmed the addition of Rs. 80,317 made in the Commission Account but, however, deleted the amount of Rs. 40,115 regarding the undisclosed income in the shape of debtors.

The assessee, dissatisfied with the order passed by the Commissioner (Appeals), Jodhpur, affirming the addition of Rs. 80,317 made in the Commission Account, preferred an appeal before the Tribunal, Jaipur Bench, and the Tribunal, by its order dated 29-7-1994, allowed the appeal filed by the appellant-assessee and deleted the addition of Rs. 80,317. Dissatisfied with the order passed by the Tribunal, the revenue preferred an application u/s 256(1) of the Act before the Tribunal to state the case and refer the questions of law mentioned in the application for the opinion of the High Court. The Tribunal, by its order dated 19-6-1995, dismissed the application filed by the revenue and refused to state the case and refer the question on the ground that the findings arrived at by the Tribunal are purely findings of fact and no referable question of law arises out of the judgment passed by the Tribunal. It is against this order that the revenue has filed this application u/s 256(2) of the Act.

The Tribunal deleted the addition made by the Assessing Authority as affirmed by the Commissioner (Appeals), Jodhpur on the ground that the authorities below have failed to appreciate how accounts have to be maintained on cash basis. The Tribunal further observed that the lower authorities have not pointed out any circumstance where cash receipts have not been accounted for by the assessee. The Tribunal, also, observed that a Subsidiary or a Memorandum Book maintained by the assessee as Memorandum Ledger would not amount the Cash system to Mercantile system and according to this system this amount received in the year, even pertains to the earlier year, shall be treated as the assessee''s income. The Tribunal, while allowing the appeal, observed as under :

We have carefully considered the rival submissions and have perused the orders of authorities below as well as the material on record. In our opinion, the arguments given by Shri Ranka are very valid and we also endorse that perhaps the authorities below have failed to appreciate how accounts have to be maintained on cash basis. We further agree with the arguments of the Id. D.R. are not substantiated from the record. On the other hand, the lower authorities have not pointed out any instance where any cash receipt has not been accounted for. We further agree that merely because a subsidiary or memorandum book has been maintained as a memorandum ledger it would not convert the cash system into mercantile system and according to this system only those amounts which are actually received in the year, even if they pertain to earlier years, shall have to be treated as assessee''s income. Similarly, as rightly explained by Sri Ranka, the balance sheet would not show outstanding debtors. Taking all these factors into account, we hold that the Assessing Officer was not justified in making the impugned additions nor was the learned Commissioner (Appeals) justified in upholding them. The addition so made is, therefore, directed to be deleted.

The findings arrived at by the Tribunal are purely findings of fact and do not give rise to any question of law. Since no question of law arises in the matter, the Tribunal, Jaipur Bench, was, therefore, justified in refusing to state the case and refer the question to the High Court. In this view of the matter, we do not see any merit in this application. The application u/s 256(2) filed by the revenue is, therefore, dismissed.