Nisar Biri Sikka No. 1 vs Commissioner of Income Tax

These two appeals u/s 260A of the Incomes Tax Act (hereinafter referred to as the Act) are directed against the order of Tribunal dated 20-8-2004 relating to the assessment years 1993-94 and 1994-95.

The brief facts of the cases giving rise to the present appeals are that the appellant (hereinafter referred to as the assessee) was a registered firm and running the business of manufacturing and sale of Bidi with trademark as Nisar Biri Sikka No. 1.

For the assessment year 1993-94, the assessee had filed return showing income of Rs. 15,314. The disclosed sale of Bidi was at Rs. 75,18,825 and the gross profit rate was shown at Rs. 4,62,635 and the percentage of gross profit was 6.15 per cent. The Assessing Authority has accepted the sale figure but rejected the books of account after applying the provisions of Section 145(1) of the Act and applied gross profit rate of 10.5 per cent, which was applied in the assessment year 1992-93 and made an addition towards extra profit at Rs. 3,27,490 The Commissioner (Appeals) allowed the appeal in part and reduced the gross profit rate by 1 per cent.

Being aggrieved by the order, the assessee filed an appeal before the Tribunal. The Tribunal allowed the appeal in part and reduced the gross profit rate to 8.5 per cent. The Tribunal has confirmed the rejection of books of account on the ground that more than 2/3rd amounts of expenditure have been incurred by the assessee in payment of labour wages and those were not completely verifiable because admitted case of the assessee was that there were self-prepared vouchers which were signed by the labours and in certain cases thumb impressions were obtained.

Learned Counsel for the appellant submitted that in the manufacturing of Bidi the involvement of labours were necessary. The labourers were illiterate and, therefore the self made vouchers were prepared for the payment and in the vouchers either the signature or the thumb impression of the labourers were obtained and in this way the payment was fully verifiable. He further submitted that the Assessing Authority and the Tribunal has not made out any case that the said vouchers were not genuine and the payments were bogus and could not be verified or denied by any of the labourers. Further he submitted that each assessment year is an independent year and the gross profit rate depends upon the facts and circumstances of each year. He further submitted that in the assessment year 1992-93 the addition was made on the ground that some discrepancies were found in the stock.

Learned Standing Counsel relied upon the order of Tribunal and submitted that since the payments were not verifiable, therefore, the provisions of Section 145(1) of the Act is applicable. He further submitted that in the case of M/s. A.M. Mazdoor Biri Co. involved in the manufacturing of Biri higher gross profit rate had been applied while in the case of assessee gross profit rate at 8.5 per cent has been applied.

Having heard learned Counsel for the parties we have gone through the impugned order and the order of the authorities below.

We are of the opinion that the rejection of books of account is not justified and based on irrelevant consideration. It is not in dispute that in the manufacturing of Biri there is involvement of labourers. The labourers are normally illiterate, as observed by the Tribunal and 2/3rd amount of the expenditure were incurred in the payment of labours wages. In these circumstances, the preparation of self made vouchers by the assessee cannot be said to be against the trade practice and method of accountancy. The assessee had no other option but to prepare self made vouchers to prove the expenditure incurred for the payment of labour wages. It is claimed by the assessee that in the vouchers the name and address of the labours, the amount paid, the date etc. were mentioned. The signature of the labourers or thumb impression have been obtained. No case has been made out by the revenue that the vouchers were bogus and the amount has not been paid. The labourers have not been examined. In these circumstances, it cannot be said that the payments were not verifiable.

In view of the above, we are of the view that the rejection of books of account is wholly unjustified. The books of account is accordingly accepted and addition in this regard is deleted.

So far as the assessment year 1994-95 is concerned, the assessment was made u/s 143 of the Act. The Assessing Authority has reopened the assessment u/s 148 read with Section 147 of the Act on the ground that in the assessment year 1992-93 the gross profit rate of 10.5 per cent was applied while the assessee has disclosed the gross profit of 6.69 per cent. The assessee has challenged the reopening of the proceedings on the ground that on the basis of the order of Tribunal for the assessment year 1992-93 the case cannot be reopened in the absence of any specific material for escapement of income. Before the Tribunal the assessee has specifically raised the arguments in this regard, which is mentioned in para 14 of the Tribunals order. The perusal of the Tribunal order reveals that such plea has not been adjudicated.

In these circumstances, we are of the view that the order of Tribunal is vitiated and liable to be set aside. The case is remanded back to the Tribunal to decide the appeal afresh and adjudicate the fundamental question namely, "Whether on the facts and circumstances of the case, the reopening of the case for the assessment year 1994-95 was justified?"

In the result, both the appeals are allowed as stated above. For the assessment year 1994-95 the matter is remanded back to the Tribunal to decide the appeal afresh in the light of observation made above.