Delhi High Court
Free Wheels India Limited vs Commissioner Of Income-Tax on 5 February, 1987
Equivalent citations: 1987 167 ITR 877 Delhi
Bench: H Goel, S Ranganathan
JUDGMENT
1. The assessed-company manufactures free wheels. By this application under section 256(2) of the Act, the assessed has sought a reference of four questions said to be question of law arising out of the order of the Tribunal disposing of the assessed's appeal before the Tribunal for the assessment year 1978-79. These questions are set out on page 2 of the petition and need not be set out here.
2. The first question of which the petitioner seeks reference arises briefly in the following circumstances :
The assessed had imported certain cadmium plates during the accounting year. The Customs Authorities took objection that the assessed had license for the import only of cadmium anodes and not cadmium plates and the goods imported were not authorised to be imported. The goods. were confiscated but the assessed was allowed to redeem the same on payment of a fine Rs. 14,000 under section 125 of the Customs Act. The assessed claimed that this sum of Rs. 14,000 was deductible in the computation of business profits since it went to enhance the cost price of the commodity imported by the assessed, the profit or loss on sale of which was taken into account for tax purposes. This has given rise to the first question. Counsel for the Department submits that this issue is covered by the decisions of the Supreme Court in the case of Haji Aziz and Abdul Shakoor Bros. v. CIT and CIT v. Piara Singh . On the other hand, counsel for the petitioner invites our attention to certain observations in CIT v. Pannalal Narottamdas & Co, and M. V. G. Baluswamy Iyer v. CIT [1955] 28 ITR 235 (Mad). These two decisions indicate a line of distinction from the decision of the Supreme Court in Haji Aziz and Abdul Shakoor Bros'. case . We think this aspect needs consideration. We, therefore, agree with the petitioner that a question of law does arise out of the order of the Tribunal. We direct the Tribunal to state a case and refer the following question of law for the decision of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 14,000, being the fine paid by the assessed in lieu of confiscation of the goods could not be taken into account as part of the actual cost of the goods and consequently was not deductible in the computation of business profits ?"
3. The other three questions sought to be raised by the assessed relate to an addition of one lakh maintained to the trading results shown by the assessed. The Income-tax Officer was of the opinion that the assessed's books were not correct and complete as no stage-wise production record or stock register for scrap was kept by the assessed. He was of the opinion that free wheels to the extent of one lakh numbers had been kept out of the books and that an addition of at least Rs. 6,00,000 was called for to the trading results shown by the assessed. On appeal, the Commissioner of Income-tax (Appeals) broadly approved the method of approach of the Income-tax Officer but, in the light of certain submissions made before him, reduced the addition to Rs. 1,50,000. On further appeal, the Tribunal has reduced the addition further to Rs. 1,00,000. The assessed is not satisfied and is aggrieved that any addition at all should have been made to the trading results and hence the prayer of the assessed to refer as many as three questions said to be questions of law arising out of this aspect of the Tribunal's order.
4. The question of trading really involves two questions :
(1) Whether the assessed's books were correct and complete to the satisfaction of the Income-tax Officer; and
(2) If not, what was the quantum of addition that could be made to the trading results.
5. Basically, both these are question of fact. So far as the first question is concerned, learned counsel for the petitioner submitted that the assessed had given a fairly satisfactory explanation for the fall in the rate of gross profit, that a complete quantitative tally could be made from the books weight-wise between raw material introduced and the final product manufactured and that the percentage of wastage was reasonable. We have already referred to the findings of the Income-tax Officer the Commissioner of Income-tax (Appeals). The Tribunal has also confirmed the concurrent findings of these authorities that the assessed had not kept any record showing the consumption of various components which went into the manufacture of free wheels day by day. The assessed also accepted this position before the Tribunal but contended that it was not possible to keep such day to day record. This contention has been accepted by the Tribunal. In our opinion. this finding of the Tribunal is finding of fact and does not give rise to any question of law.
6. The second question is regarding the quantum of the addition. The Income-tax Officer after an elaborate discussion concluded that as many as one lakh pieces of free wheels must have been kept outside the books. Certain defects in a part of the reasoning of the Income-tax Officer were brought to the notice of the Commissioner of Income-tax (Appeals) who made the necessary adjustments and for this reason reduced the addition to Rs. 1,50,000. The Tribunal has substantially confirmed this addition giving some relief to the assessed. The actual quantum of addition, in the ultimate analysis, is only question of estimate and since the order discloses a basis for the addition sustained, we are unable to discover any principal of law. We, therefore, find no question of law in this part of the Tribunal's order.
7. For the reasons already stated, we direct the Tribunal to state a case and refer the question of law regarding the allow ability of Rs. 14,000 for the decision of this court.
8. This application is disposed of. No order as to costs.
