PLASTIC CONCERN Vs. ASSISTANT COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This appeal is directed against the revisional order passed by the CIT under s. 263 of the IT Act, 1961.

(2.) For the asst. yr. 1993-94, assessee filed return of income on 30th March, 1994. Along with the return, copies of tax audit report, manufacturing and trading account and balance sheet were also filed. In the balance sheet, vide Notes on accounts, the assessee clarified as under :

(3.) As the matter stood thus, on 24th July, 1996, the CIT, WB-VIII, Calcutta issued a notice under s. 263 of the Act directing the assessee to show cause as to why the assessment order should not be treated as erroneous in so far as it is prejudicial to the interests of the Revenue on the ground that the AO failed to make further investigation with regard to the claim of liability for purchases amounting to Rs. 2,08,46,250. Assessee replied on 17th August, 1996, wherein it is stated that the aforesaid aspect was fully investigated by the AO in the course of hearing which is evident from the information obtained by the AO from the two parties by issuing notice under s. 133(6) of the Act and also by the reply given by the assessee. It was further submitted that the evidence gathered by the AO could be considered as sufficient enquiry before framing an assessment order and there is no error in the order of the AO. A letter dt. 30th March, 1993 addressed by the assessee to RSI Ltd. was also enclosed to the reply which contains the facts that the assessee informed RSI Ltd. of the consumption of the materials supplied by them. It was also stated that when compared to the price of the goods purchased from the Department of Customs, Govt. of India, the liability actually provided by the assessee against the raw materials supplied by the aforesaid two parties is much less and, therefore, from no angle, the order of assessment could be considered as prejudicial to the interest of Revenue as there was no discrepancy in the purchase price noted. Reply to the revisional authority is also on the issue that the assessee having followed mercantile system of accounting, raw materials consumed by the assessee should be shown as purchase and the liability against the purchase price has to be necessarily shown in order to arrive at the correct profit as otherwise, the sale value of finished products emerging out of the impugned raw materials consumed would show a distorted profit figure and the correct picture of the profit will not emerge without showing the corresponding liability for the said purchase.