OMAX SHOE FACTORY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, New Delhi has referred the following question of law under Section 256 (1) of the Income Tax Act, 1961 (hereinafter referred to as "Act") for opinion to this Court.

(2.) The brief facts of the case giving rise to the present case are that the applicant/assessee (hereinafter referred to as "assessee") was carrying on the business of manufacture and export of leather shoes. The assessee's turnover in the year was Rs. 107.65 Lacs. The profit shown thereon was Rs. 15.60 Lacs giving a gross profit rate of 14.5%. The gross profit for the immediately preceding assessment year was 17.6%. During the course of assessment proceeding, Assessing Authority made an enquiry about gross profit, assessee had submitted that the exports in the year had been more on which the profitability was less. Assessing Officer noticed that the assessee did not maintain any production register, day today consumption of raw material was also found not properly maintained, Assessing Officer, thereafter, considered the case of M/S Mahesh Shoe Factory whose turnover was more than that of the assessee and the profit rate also was 19%. Assessing Officer also found that certain employees were paid very low while certain others were drawing little over Rs. 2,000/- for the similar work. Contention of assessee was that the higher wages were received by some persons on behalf of several others, was rejected by the Assessing Officer. Assessee has also debited wages and labour of Rs. 10,58,551/-. The wage register was produced and it was found that while some employees had been paid Rs. 2000/wages of only few hundred per week and others had been paid Rs. 2000/- or more for similar work. When confronted with this anomaly, the Accountant explained that the higher wages were received by one person on behalf of several others as the Factory Act and Labour Laws forbid the assessee to employee labours more than a certain; number (about 8 or 10) without incurring additional liability, the wages claimed to have been paid by the assessee, can not be, therefore, be accepted as actually paid to the labourers and the assessee's books have additional reason for rejection. Assessing Authority after rejecting the books of account, estimated the gross income after applying the gross profit rate @ 19%. In First Appeal, C.I.T. (Appeal) up-held the order of Assessing Authority rejecting the books of account and addition of Rs. 4,85,000/-. Assessee filed Second Appeal before the Tribunal. Tribunal vide impugned order, up held the rejection of books of account and the addition.

(3.) We have heard Sri V. Gulati, learned Counsel for the assessee and Sri A.N. Mahajan, learned Counsel for the Revenue.