Commissioner of Income Tax vs Weston Carbon Products

A.K. Mathur, C.J.—This is a reference u/s 256(1) of the income tax Act, 1961 (''the Act'') at the instance of the revenue and the following questions of law have been referred by the Tribunal for answer by this Court : " 1. Whether, the Tribunal was justified in law to allow the assessee''s claim of Rs. 6,80,350 towards purchases when they were also disallowable u/s 40A(3) of the income tax Act ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of Commissioner (Appeals) who directed the Assessing Officer to allow registration to the firm in spite of the fact that the assessee did not distribute the incomes of Rs. 6,80,350 and Rs. 25,000 which were concealed by it and about which inaccurate particulars were furnished and also did not intend to distribute these incomes amongst partners in accordance with their profits-sharing ratio?

Whether, the Tribunal was justified in law in setting aside the assessment order on the issue relating to addition of Rs. 25,000 made by the Assessing Officer u/s 68 of the income tax Act and confirmed by the Commissioner (Appeals) with the finding that adequate opportunities were provided to the assessee and the assessee even failed to prove the genuineness of the cash credits even before him [Commissioner (Appeals) ]?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the penalty levied by the Assessing Officer at Rs. 3,60,000 u/s 271(1)(c) read with Explanation with the finding that the assessee has concealed the income and furnished inaccurate particulars thereof ?"

So far as question No. 1 is concerned, though it has not been properly framed and argument regarding section 40A(3) was nowhere raised before the Tribunal, the question that needs to be framed is whether the decision of the Assessing Officer and the Commissioner (Appeals) who disallowed the expenses of Rs. 6,80,350 on the basis of the material before them, were justifiably overruled by the Tribunal and the Tribunal has justifiably allowed Rs. 6,80,350 as an allowable deduction. The Assessing Officer called upon the assessee to justify this expenditure and the explanation given by the assessee was that he had purchased this material from one Rashtriya Coal Complex, Thane. Then an enquiry was made from it and it has denied to have sold this material to the assessee. Then the assessee was called upon to produce vouchers but that too he did not produce. The material which was placed before the Assessing Officer was not satisfactory and he disallowed the deduction of Rs. 6,80,350.

Aggrieved with the order of the Assessing Officer, the assessee went in appeal before the Commissioner (Appeals), who affirmed the order of the Assessing Officer. In another appeal before the Tribunal, the Tribunal reversed the finding holding that from the material placed before them in paper book it does not appear that the assessee has shown more consumption of raw materials is commensurate with production. What was the material placed before the Tribunal which satisfied them, than what is not understandable. The Tribunal has observed that once the revenue has accepted the entire books of account, then the only course open to them was to have applied section 145(2) of the Act. The Tribunal found that the disallowance of Rs. 6,80,350 made by the Assessing Officer was not correct and he should not have made an addition to the income of the assessee. From the order of the Tribunal, we are not satisfied as to in what way, the Tribunal was satisfied with the material placed before it that the consumption of raw materials was commensurate with production. No data of production has been given. Be that as it may, we direct the Tribunal with regard to question No. 1 that a detailed statement of the case may be sent considering all the material which was examined by the Assessing Officer and by the Commissioner (Appeals) and, thereafter the Tribunal should record its finding. Hence, the Tribunal is directed to send additional statement of the case in the light of the aforesaid observations.