NATWARLAL AND COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under S. 66(2) of the Indian IT Act, 1922. The assessee in this case is B. Natwarlal & Co. Dhoribhai Lallubhai Patel is the sole proprietor of B. Natwarlal & Co. The assessment year with which we are concerned is the year 1953 -54, the relevant accounting year being Samvat Year 2008, i.e., the period commencing from 31st Oct., 1951, to 18th Oct., 1952. The assessee has been assessed in the status of an individual on the profits which accrued to him in his business carried on in the name of B. Natwarlal & Co. in tobacco. The business consisted in making purchases of raw tobacco from local agriculturists and the sale thereof after subjecting the same to certain processes such as curing, etc. By an agreement of partnership dt. 30th Oct., 1952, entered into between Dhoribhai Lallubhai Patel and his five sons, it was agreed that the aforesaid business of B. Natwarlal & Co. and other businesses carried on by his sons should be amalgamated so that all the said businesses could be carried on in partnership, from Kartik Sud 1st, Samvat Year 2009, i.e., 19th Oct., 1952. Clause (1) of the said partnership deed provides that a new firm has been constituted on Diwali day of 1952, i.e., 18th Oct., 1952, and that it had succeeded to all the assets and liabilities of the various running businesses referred to in the said deed of partnership and that all the said businesses would from Kartik Sud 1st, Samvat Year 2009, i.e., 19th Oct., 1952, be the businesses of the partnership. A reference to this partnership is necessary in view of the fact that all the stock of the assessee was taken over by the newly constituted firm of M/s Purshottamdas Dhoribhai & Co. It was found that the quantity of tobacco patti shown as the opening stock for Samvat Year 2008, i.e., the stock which existed on Kartik Sud 1st, Samvat Year 2008, i.e., 31st Oct., 1951, together with the purchases made during the accounting year, Samvat Year 2008, exceeded the quantity shown as closing stock by 273 maunds and 26 seers. The ITO valued the shortage at the average selling rate of Rs. 137 per maund and made an addition of Rs. 37,500 to " the trading results ". When the matter came up before the AAC it was found that the quantity of 273 maunds 26 seers referred to above could be split into two items : one, an item of 232 maunds 18 seers, hereinafter for brevity's sake referred to as item (a), and an item of 41 maunds 8 seers, hereinafter for brevity's sake referred to as item (b). As regards item (a), 232 maunds 18 seers arose by reason of the fact that that quantity of tobacco had been sold during the Samvat year 2007, but delivery of that quantity of tobacco was not given during Samvat year 2007, but was given during Samvat year 2008. As regards item (b), it was found that on 30th Nov., 1951, when the excise authorities checked the goods lying in the warehouse of the assessee, a shortage of 41 maunds 8 seers was discovered. It was urged before us by Mr. Thakar, learned advocate for the assessee, that this shortage occurred due to evaporation and processing of goods. The Tribunal in its order dt. 6th May, 1958, has stated in connection with item (b) as under : "According to the certificate given by the central excise authorities the stock of tobacco on 30th Jan., 1951, i.e., at the end of Samvat year 2007, was 2,269 maunds 8 seers. This is the same figure as taken by the ITO in para 19 of his order in arriving at the discrepancy in the stock position. This deficit could, therefore, only have occurred before 30th Oct., 1951, i.e., Samvat year 2007, not in the relevant year of account but in the prior year. The AAC, therefore, held that the closing stock of Samvat year 2007 was short by this figure of 41 maunds 8 seers and hence it should also have been deleted from the opening stock of Samvat year 2008. "

(2.) IN the statement of the case the Tribunal has observed that the case proceeded before the Tribunal on the footing " that the deficit of 273 maunds 26 seers was attributable to the opening stock shown in Samvat year 2008. " The ITO had added a sum of Rs. 37,500 to the profits of the assessee in connection with this shortage of 273 maunds 26 seers on the footing of the average selling rate of Rs. 137 per maund. This sum of Rs. 37,500 was reduced to Rs. 33,000 by the AAC who took the rate of Rs. 121 per maund instead of Rs. 137 per maund. Out of this sum of Rs. 33,000, Rs. 28,025 was attributable to quantity (a) and the balance of Rs. 4,975 was attributable to quantity (b). When the matter was brought before the Tribunal, the assessee asked the Tribunal to direct the ITO to reopen the assessment made by him for the earlier asst. year 1952 -53, i.e., for the accounting Samvat year 2007, on the ground that the closing stock shown in the earlier accounting year was shown at a larger figure than what it really ought to have been. In dealing with this argument, the Tribunal has observed as follows : "As already observed, without full data and material, no such direction can be given. We have, however, no doubt that the Department will look into the matter and if the same amount as alleged by the assessee has been taxed in the earlier year, it will grant the necessary relief. We agree with the AAC that so far as the relevant year of assessment is concerned, the shortage of 41 maunds 28 seers remained unexplained. This addition on that account will form part of the closing shortage of 273 maunds 26 seers and has, therefore, rightly been added. " On the aforesaid facts there are two questions which have come up before us for decision :

(3.) THE Tribunal was concerned with the assessment for the asst. year 1953 -54, i.e., for the accounting Samvat year 2008. The assessment for the asst. year 1952 -53, i.e., for the accounting Samvat year 2007, was not before the Tribunal. The Tribunal was asked to give a direction in respect of the assessment of the assessee for a year in respect whereof the matter was not pending or brought before the Tribunal. Mr. Thakar placed reliance on the provisions contained in s. 33(4) of the Indian IT Act, 1922. That section runs as under :