Skip to content


Sterling Machine Tools Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 162 of 1978
Judge
Reported in[1980]123ITR181(All)
ActsIncome Tax Act, 1961 - Sections 246 and 256(2)
AppellantSterling Machine Tools
RespondentCommissioner of Income-tax
Appellant AdvocateC.S. Agarwal, Adv.
Respondent AdvocateR.K. Gulati and ;A. Gupta, Advs.
Excerpt:
- - it was, however, urged on behalf of the assessee that the assessee was not confronted with the experts' report, and further that the experts' report was not on the record, which clearly indicated that the statement made by the assessee was under a misapprehension. counsel for the assessee urged that there were a number of circumstances, which clearly indicated that the report of the expert was not on the record, and the ito erred in referring to the report......material with the income-tax appellate tribunal to hold that the assessee was confronted with the experts' report on may 17, 1968 ? 5. whether, on the facts and in the circumstances of the case, the appellate tribunal was justified in sustaining the addition of rs. 41,820.' 3. this court, by its order dated april 25, 1977, referred only one question, which has already been set out earlier. it refused to refer question no. 3 on the ground that the question as to whether the assessee was confronted with the experts' report was a question of fact, and no question of law arose. as regards the fourth question, it was held that although it raised a question of law yet as the answer was self-evident, no reference in respect of this question could be called for.4. we may now set out the facts.....
Judgment:

C.S.P. Singh, J.

1. The Income-tax Appellate Tribunal has referred the following question of law for our opinion :

'Whether the Tribunal was right in law in holding that no appeal lay to the AAC under Section 246(c) of the Income-tax Act, 1961, against the assessment relating to the addition of Rs. 32,529 to the machine account of the assessee when the assessment in that regard was made on agreed basis as finally held by the Tribunal ?'

2. In view of the arguments advanced in the reference, it is necessary to refer to the reference application moved before this court, and the orders passed thereon. The assessee had moved a reference application before the Tribunal praying for the reference of a number of questions, but the Tribunal referred only one question, which forms the subject-matter of I.T.R. No. 162 of 1978. The question referred by the Tribunal in that reference is whether the Tribunal was right in law in holding that no appeal lay to the AAC under Section 246(c) of the I.T. Act, 1961, against the assessment relating to the addition of Rs. 32,529 to the machine account of the assessee when the assessment in that regard was made on an agreed basis. Thereafter, the assessee moved an application before this court praying for a reference of the following questions:

' 1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessment based on the letter dated May 17, 1968, is a valid assessment in law ?

2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessment made on agreement was justified and sustainable in law ?

3. Whether the conclusion of the Income-tax Appellate Tribunal on the facts and in the circumstances of the case, that the assessee was shown the experts' opinion on May 17, 1968, was justified and sustainable in law ?

4. Whether, on the facts and in the circumstances of the case, there was any material with the Income-tax Appellate Tribunal to hold that the assessee was confronted with the experts' report on May 17, 1968 ?

5. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in sustaining the addition of Rs. 41,820.'

3. This court, by its order dated April 25, 1977, referred only one question, which has already been set out earlier. It refused to refer question No. 3 on the ground that the question as to whether the assessee was confronted with the experts' report was a question of fact, and no question of law arose. As regards the fourth question, it was held that although it raised a question of law yet as the answer was self-evident, no reference in respect of this question could be called for.

4. We may now set out the facts relevant for the decision of the question. The assessee had sold 19 centering machines to M/s. Modern Enterprisers of Kanpur at the rate of Rs. 15,500 per machine. The books of account indicated the cost at Rs. 9,432. The ITO had the report of the Vigilance Bureau and a board of experts in respect of costs of manufacturing machines, which according to them, after deducting 25% profit for the trader came to Rs. 7,331 per machine. The assessee was confronted with this report, and Satish Chandra, a partner of the firm, sent a letter stating that although the cost of the machine was much more than calculated by the board of experts, its income may be worked out on the basis of the experts' reports. It was stated that this admission was being made without prejudice to the right of the assessee to contest the penalty proceedings. As a result of this letter the ITO worked out the gross profit on the sale of these machines at Rs. 1,57,111. Ultimately, he made an addition of Rs. 41,820 in the net income of the assessee. The assessee filed an appeal, and the AAC reduced the addition to Rs. 6,000 only. Both the assessee and the revenue appealed against this order. The Tribunal by its order dated August 21, 1977, set aside the appellate order and directed the appeal to be reheard. The appeal was again heard, but the AAC reduced the enhancement on the view that the assessee had not been confronted with the experts' opinion regarding the cost of the machine, and as such the addition made by the ITO was not justified. The department and the assessee both appealed against this order. One of the questions that arose before the Tribunal was as to whether the assessee was bound by the admission made in the letter of its partner dated May 17, 1968. From the order passed by the Tribunal, it appears that the assessee did not dispute the fact that it was bound by the admission made by its partner, Sri Satish Chandra. It was, however, urged on behalf of the assessee that the assessee was not confronted with the experts' report, and further that the experts' report was not on the record, which clearly indicated that the statement made by the assessee was under a misapprehension. Although the report was not traceable on the record, the Tribunal after considering the entire circumstances held that the assessee had been confronted with the experts' report, and had written the letter after seeing the report, and had agreed to the income being computed in respect of the cost as worked out by the experts. Counsel for the assessee urged that there were a number of circumstances, which clearly indicated that the report of the expert was not on the record, and the ITO erred in referring to the report. It was also contended that the report was never shown to the assessee, and as such the admission made by the assessee in its letter would not bind the assessee. In this context, it was urged that the assessment made against the assessee, which was based solely on the admission contained in the letter given by Sri Satish Chandra, was invalid. We are of the view that it is not open for the assessee to urge that the assessee was not confronted with the report of the experts, or that he wrote the letter without being cognisant of that report. Although the assessee had asked for a reference of these questions, this court had declined to do so. The contention of counsel for the assessee that these questions are embedded in the question referred is unsound, for the assessee having asked for a specific question in regard to the fact as to whether the assessee was confronted with the report, and the court having declined to do so, it is not possible now to urge that the question referred embraces this aspect of the controversy too. Once the finding of the Tribunal that the assessee was confronted with the experts' report is accepted, it is also not possible to accept the contention of the assessee that the letter given by Sri Satish Chandra, a partner of the firm, agreeing to the assessment being made on the basis of the cost of the centering machine as worked out by the experts' board, was written under a misapprehension and ignorance of the experts' report.

5. The letter of the assessee being a voluntary one, and the assessee having agreed to the costs of the machine being worked out on the basis of the report of the experts' board, the ITO was justified in working out the profit on the sales of these machines by deducting the cost price as worked out by the experts from the sale price.

6. Counsel for the assessee has not been able to draw our attention to any authority to the effect that the profit of an assessee cannot be worked out on the basis of an admission made by the assessee as respects the cost incurred in manufacturing the particular article, and deducting that amount from the sale price.

7. We, accordingly, answer the question in the affirmative, in favour of the department and against the assessee. The department is entitled to its costs, which is assessed at Rs. 200.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //