Judgment:
ORDER
S.K. Kulshrestha, J.
1. The above two appeals under Section 260A of the IT Act, 1961, arise from the order dt. 18th Aug., 2000 passed by Tribunal in ITA Case No. 880/Ind/1992 and ITA Case No. 818/Ind/1992, both, for the asst. yr. 1989-90.
The Revenue's appeal has been admitted on the following substantial questions of law:
1. Whether, on the facts and in the circumstances of case, the Tribunal was justified in law in confirming the order of the CIT(A) thereby sustaining addition of only Rs. 2,71,104 on the basis of application of GP rate even when the AO had (made) specific addition of Rs. 66,57,128 and Rs. 8,12,467, respectively, on account of sale of Kattha and Cutch outside regular books of account of the assessee ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of the CIT(A) thereby sustaining addition of only Rs. 2,71,104 as against addition of Rs. 66,57,128 and Rs. 8,12,467 made by the AO on account of sales account of the assessee ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of the CIT(A) thereby upholding the application of GP rate of 25 per cent in the case of the assessee who is a manufacturer instead of the addition made by the AO on the basis of yield shown by the assessee ?
The appeal of the assessee has been admitted on the following question of law:
Whether on the facts and in the circumstances of the case and in view of the positive finding regarding absence of any defects or discrepancies, the Tribunal's decision upholding the rejection of books and application of flat GP rate is vitiated in law
Since both the appeals dwell on common facts and arguments, the appeals are being disposed of by this common order.
2. The assessee is a private limited company incorporated and registered under the Indian Companies Act, 1956 and is engaged in the business of manufacture and sale of Kattha and Cutch which are derived from processing Kher wood. For this purpose the assessee-company purchased Kher wood pieces from the Forest Department of the Government of MP as well as from other parties. The Kher wood contains raw material which is called hart wood which is obtained after stripping the trees.
3. The assessee-company filed its return of income for the asst. yr. 1989-90 disclosing a loss of Rs. 3,49,893. The assessment was completed by the assessing authority under section 143(3) of the Act. During the course of assessment proceedings books of account, documents and registers properly maintained by the assessee in the course of regular business, were produced. However, the AO rejected the books maintained by the assessee under the provisions of Section 145(2) of the IT Act on the ground that the assessee has not maintained quantitative records in respect of the Kher wood trees on the basis of their weight, though the assessee has maintained complete quantitative details on the basis of the number of trees purchased. The AO also worked out the recovery of hart wood and determined the yield at 14.13 per cent. On the basis of the yield so determined, the AO determined the sale of Kattha at Rs. 6,57,128 and treated the same as undisclosed sale. He also determined the sale of Cutch at Rs. 8,12,467.
4. Aggrieved by the order of AO, an appeal was filed before CIT(A), who disagreed with the findings of the assessing authority in relation to the books of account of the assessee, on the basis of the GP rate of 25 per cent sustained the addition only to the extent of Rs. 2,71,104 vide his order Annex. A/3. The assessee and the Revenue, both challenged the order of GIT (A) before the Tribunal. The Tribunal confirmed the order of CIT(A) vide Annexs. A/4 and A/5. It is against this order that both the parties have filed the above appeals undersection 260A of the IT Act.
5. In IT Appeal No. 7 of 2001, learned senior counsel for the Revenue has submitted that since in the past year yield of Kattha was much more than the yield indicated in the assessment year in question, the AO was justified in rejecting the accounts and making an addition and the CIT(A) and the Tribunal should not have set aside the said addition. In IT Appeal No. 9 of 2001, learned Counsel for the assessee submits that since the log of woods purchased from the Government and various other firms are not of uniform size and the yield of Kattha from various logs varies for a large variety of reasons, the yield derived in the past cannot be made basis for calculating the yield of Kattha of future years and therefore, on the basis of the accounts maintained by the assessee, the Revenue should have accepted the yield shown. Learned Counsel for the assessee has also demonstrated the pieces of Kher wood to substantiate his argument.
6. It is not disputed that the timber (Kher wood) is available in the market in various sizes and therefore the yield derive from the timber depends on length, girth and also weight of the timbers. The quality of Kattha is also different. Under these circumstances, merely on the basis of the number of logs purchased by the assessee, the AO could not have, on the basis of past records or any other extraneous material, calculated the yield of Kattha. We are, therefore, of the opinion that the method adopted by the AO in deriving the yield of Kattha from the Kher wood was not a sound method. Under these circumstances, the addition made capriciously was not justified. However, the addition made by the CIT(A) and the Tribunal in the sum of Rs. 2,71,104 by applying 25 per cent rate of GP appears to be reasonable.
7. In view of the above discussion, both the appeals are dismissed but with no order as to costs. A signed copy of this order be also kept in the record of IT Appeal No. 9 of 2001.