AMBIKAJI RICE MILLS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE present case arises out of an order passed by this court under Section 256(2) of the Income-tax Act, 1961, directing the Tribunal to refer the following question of law for its opinion :

(2.) THE assessee is a Hindu undivided family. It has a rice mill and carries on business of milling rice. THE present case relates to the assessment year 1974-75. During this assessment year, the assessee disclosed a turnover of Rs. 16,50,076 and gross profit of Rs. 56,571. Since, according to the Income-tax Officer, certain expenses which ought to have been adjusted in the profit and loss account had been wrongly adjusted in the manufacturing/trading account, he readjusted the gross profit at Rs. 39,264. Further, according to the Income-tax Officer, the readjusted gross profit was too low and so, he called for an explanation from the assessee to explain the reasons for the same. According to the assessee, the main reason for the low gross profit was sales of rice effected to the Government as levy at statutorily fixed procurement prices which are much low as compared to market prices, thus causing huge losses. As per the accounts for the period under consideration, the assessee had sold 1,767 quintals 95 kgs of rice to the Government at the rate of Rs. 95/25 per quintal whereas the market price for the coarse variety of rice was in the average Rs. 175/16 per quintal. Thus, on every quintal of rice supplied in levy, the assessee had to incur loss of Rs. 79.91 causing a total loss of Rs. 1,42,719 on the supplies effected during the period. THE explanation of the assessee did not find favour with the Income-tax Officer. He was of the view that the rice supplied to the Government under levy orders is always of the lowest quality and, therefore, it cannot result in losses as claimed. THErefore, he rejected the books of account and added a sum of Rs. 35,000 to the gross profit shown.

(3.) IN this view of the matter, there was no occasion on the part of the Tribunal to agree with the views of the income-tax authority and sustain the additions in the trading account. Apart from this, the Tribunal has not given any acceptable reason for holding that, in the nature of the trade carried on by the assessee, a reasonable rate of gross profit should have been 10%, As such, I hold that the Tribunal was not justified in sustaining the addition of Rs. 30,146 in the trading account.