COMMISSIONER OF INCOME TAX Vs. KASHI NATH CHANDIWALA

JUDGEMENT

(1.) The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion to this Court : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition made by the Commissioner of Income-tax (Appeals) by exercising his powers of enhancement under Section 251 of the Income-tax Act, 1961?

(2.) Briefly stated the facts giving rise to the present reference are as follows : The present reference relates to the assessment year 1983-84. The respondent is a firm and derives income from sale of silver ornaments and silver bullion. It had filed the return of income of Rs. 93,960. The Assessing Officer scrutinized the trading account, which disclosed sales of Rs. 27,11,614 with a gross profit of Rs. 2,53,842, which worked out to 9.36 per cent., as against that of the last year of 10.6 per cent, on sales of Rs. 29,83,638. The Income-tax Officer noticed that both the sales and the rate of gross profit had gone down and required the respondent-assessee to explain it. The respondent-assessee explained that the purchase of silver bullion was less but the sale of ornaments had increased. The Assessing Officer considering the fact that the purchases and sales were supported by vouchers and quantitative details had also been maintained, accepted the trading results disclosed by the assessee. He, however, noticed that the melting loss in melting old ornaments and converting them into bullion was more this year being 18.80 per cent, against that of the last year at 17.11 per cent. Though the assessee furnished some details for this, yet no proper accounts were kept for this purpose, the Assessing Officer concluded that some addition was called for on this account. Accordingly, he made an ad hoc addition of Rs. 3,000 to the income disclosed by the respondent-assessee.

(3.) Feeling aggrieved, the respondent-assessee preferred an appeal before the Commissioner of Income-tax (Appeals) on the addition of Rs. 3,000. It was pleaded before him that there was no hard and fast rule to determine the extent of metal alloy and as the alloy this year was more, the extent of wastage in making of ornaments was quite reasonable. It was also mentioned that the margin of profit had fallen marginally only, which was normal in this line of business.