Judgment:
Rajes Kumar, J.
1. The Income Tax Appellate Tribunal has referred the following two questions under Section 256(2) of the Income-tax Act (hereinafter referred 10 as 'Act') relating to the assessment years 1982-83 for opinion to this Court:
'(1) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in disapproving the Assessing Officer's action in making addition of Rs. 89,000/- should be Rs. 89,500/- on account of income from undisclosed sources within the meaning of Section 68 of the Income-tax Act, 1961?
(2) Whether on the facts and circumstance of the case, the Tribunal was correct in law in holding that no separate addition under the head 'income from undisclosed sources' within the meaning of Section 68 of the Income-tax Act, 1961 is called for?'
2. The brief facts of the case are as follows:
The assessee/opposite party (hereinafter referred to as 'assessee'') is a partnership firm and was deriving income from the business of manufacture/assembly of diesel engine sets and diesel generating sets. For the year under consideration, the Assessing Authority has made two additions one for Rs 1,50,980 towards undisclosed profit on the sale of fuel injector equipment and a sum of Rs. 89,500/- towards unexplained cash credit under the head 'Dealership Security Account'. For the aforesaid two additions, the assessee filed appeal before the Commissioner of Income-tax (Appeals) which was allowed in part. The Commissioner of Income-tax (Appeals) reduced the addition of Rs. 1,50,00 to Rs. 89,000/- and has deleted the addition towards unexplained cash credit for Rs. 89,500/-.
3. The finding of the Commissioner of Income-tax (Appeals) is as follows:
'I have heard the learned counsel and seen the facts of the case and gone through the details on file. Looking into the totality sdof circumstances, it appears that the assessee's version cannot be accepted in toto but at the same time the I.T.O. also appears to have taken a very extreme view totally disregarding the special circumstances prevailing in the assessee's case, for example, his recent entry in this line of business, inexperience, low sales, refund of deposits, cancellation of ISI recognition certificate, absence of power connection forcing the assessee to use its own engine for working its machineries so on so forth, apparently the consumption shown by the assessee is on a very high side. For 273 engines produced he has utilized 1105 injectors. Even if the theory of replacement before sale due to use and consequent damage by the assessee's own user is accepted, an additional 273 complete injectors can be considered to have been consumed. Of course, certain observations of the I.T.O., like paucity of staff and sale out of books are not supported by facts. The assessee has debited a sum of Rs. 82,210/- in the wages A/C. Moreover, replacement for some of the customers cannot be ruled out because a new manufacturer in the line has to create goodwill in the market. If a credit for 273 more injectors is given, it will amount to extra consumption of 273 injectors valued at 273 x Rs. 170 - 46,420/-. When reduced from the addition of Rs. 1,89.080/- extra consumption would come to Rs. 92,650/-. Some margin can be give for defective pumps as well as from replacement to buyer. The addition on account of deposits is to be considered along with this item. The original deposit totaled to Rs. 93,700/-. The ITO has added only the balance at the end of the year amount to Rs. 89,500/-. The 20th ground of appeal to the effect that this amount to double addition sounds plausible. Thus, I am inclined tosd give assessee credit for additional 273 pieces valued at Rs. 46,410/- and some margin for the pumps and free replacements to buyers and restrict the disallowance for extra consumption at Rs. 89,500/- which will also cover the unexplained deposits covered by ground Nos. 1 to 4. Appellant's story of deposits by dealers is unconvincing and details discussed by the ITO totally disprove it I am of the view that the sale out of the books has been ploughed back in form of deposits. A separate addition for the same would , accordingly be deleted. In the net result the additions for deposits as well as extra consumption would be restricted to Rs. 89,500/- and the net relief for ground Nos. 1 to 4, 5 to 10 and 20 would come to Rs. 1,50,980/-. The ITO is accordingly directed to restrict the disallowance under these head to Rs. 89,500/-.'
4. Against the order of the Commissioner of Income-tax (Appeals), assessee filed appeal before the Tribunal challenging the addition of Rs. 89,000/- which was sustained by the Commissioner of Income-tax (Appeals) towards extra consumption of fuel injector. It appears that the Revenue has filed appeal challenging the reduction of addition from Rs. 1,50,980/- to Rs. 89,500/-. Tribunal rejected both the appeals filed by the assessee as well as Revenue and sustained the order of the Commissioner of Income-tax (Appeals). The Tribunal held has follows.
'We have given our careful consideration to the rival contentions. On the basis of evidence on record it cannot be disputed that the assessee's venture in the manufacture of diesel engine sets has not been successful. Though assessee was not under an obligation to replace the fuel injector sets manufactured by M/S Mico in respect of the generating sets yet there is some evidence that assessee did replace fuel injector sets in some of the cases. The fact that ISI mark was cancelled in respect of the diesel engine sets also gives credence to the fact that the generating sets manufactured by the assessee were not upto the desired quality. That being so, the normal consumption of fuel injector sets in respect of manufacturers of some products cannot be compared with that of the assessee. In our view, the CIT( A) was justified in giving higher percentage of consumption of fuel injector sets on account of manufacturing defects for the products. Thus the objection of the revenue in this regard cannot be entertained.
Assessee not having maintained complete record of replacement of fund injector sets, the revenue authorities have no option but to resort to an estimate. Whereas normally assessee ought to have consumed 273 fuel injector sets, the consumption has been declared at 1107 complete sets and additional 140 pieces of pumps. The consumption disclosed by the assessee dues not appeal to common sense. It is nobody's case that replacement of fuel injector equipment sets has taken place in every case. Even if it is presumed that it was so the additional consumption would have been 273 injector sets. The assessee's claim is that in some cases the replacement has been more than once. In our view, on consideration of the facts and circumstances of the case, the estimation 273 sets of fuel injector takes care for the replacement of the equipment more than once when we consider that in some of the cases no replacement had been made. The estimate made by the CIT (A) seems to us most reasonable and no interference is called for. The addition thus sustained on account of excess consumption of fuel injector equipment sets is hereby confirmed.
It is not necessary for us to deal with the contention on behalf of the assessee regarding addition on account of dealers deposit, as no separate addition has been sustained by the CIT (A) on that account. However, we would like to mention that in respect of the 5 years of the deposits of Rs. 200/- each assessee had produced evidence and the Assessing Officer could not have rejected the same unless the statements made by the depositors were to be wrong. The mere fact that the parties are agriculturists would not establish that the deposits were not made when the parties appear before the Assessing Officer and confirms to have made deposit. Absence of rest experiences in this line would give rise to suspicion but it is well established that suspicion cannot take place of proof. Once a witness is produced, it is for the Assessing Officer to break him by asking relevant questions relevant for taking a judicious decision. The Assessing Officer has not made independent enquiries from the depositors nor has the contention of the assessee been rebutted that it was asked to produce only five of the depositors and not any more. In these circumstances, we do not approve the action of the Assessing Officer in making the addition of Rs. 89,500/- on account of income from undisclosed sources. However, as already stated, no separate addition having been sustained by C. I. T. (A), assessee would not be entitled to any relief in this regard.'
5. Heard Sri Shambhu Chopra, learned Standing Counsel appearing on behalf of the Revenue and Sri R.S. Agarwal, learned counsel of the assessee.
6. Learned Standing Counsel submitted that the Tribunal has illegally confirmed the order of the Commissioner of Income-tax (Appeals) deleting a sum of Rs. 89.500/- which was added by the Assessing Authority towards unexplained cash credit under the held dealership security Account' under Section 68 of the Act inasmuch as the dealer has failed to prove the genuineness of the deposit, identity and credit-worthiness of such depositor. Learned counsel for the assessee submitted that the question raised did not arise from the order of the Tribunal because no appeal was filed by the revenue before the Tribunal against such deletion and the contention of the assessee regarding addition on account of the dealer deposit has not been dealt with, by the Tribunal because no separate addition has been sustained by the Commissioner of Income-tax (Appeals) on that account.
7. We have perused the order of the Tribunal and the authentic below. Perusal of the order of the Commissioner of Income-tax (Appeals) shows that Commissioner of Income-tax (Appeals) has sustained the addition of Rs. 89.500/- towards extra consumption of fuel injector and has deleted unexplained deposits on the ground that the same was covered by the addition on account of extra consumption. Present is not the case where the addition towards unexplained cash credit has been deleted on the ground that it was properly explained but on the ground that it is covered by the addition made towards extra consumption. Perusal of the order of the Tribunal shows that the view of the Commissioner of Income-tax (Appeals) that sale out of the books has been ploughed back in the form of deposits and the separate addition was the same could be deleted, has not been challenged by the revenue before the Tribunal. The effect of the finding of the Commissioner of Income-tax (Appeals) is that it has been accepted that the sale out of the books of account has been deposited in the form of cash credit, the addition in respect thereof at Rs. 89,500/- has been sustained, therefore, the Commissioner of Income-tax (Appeals) and the Tribunal has not deleted the addition made by the Assessing Authority as an unexplained cash credit under Section 68 of the Act. as it was explained, but it has been deleted on the ground that the deposits were out of sale made out of the books of account and the addition to that extent has been sustained. We do not find any error in the view of the Tribunal inasmuch as the revenue before the Tribunal has not challenged the view of the Tribunal.
8. In view of the foregoing discussions, both the questions referred to us answered in the affirmative, i.e. in favour of the assessee and against the revenue.