SUBBA RAO J. - These two batches of appeals arise by special leave out of income-tax proceedings under the Indore Industrial Tax Rules, 1927, hereinafter called the Rules. The first batch of 5 appeals is preferred against the common judgment and order of the High Court of Madhya Pradesh, Indore Bench, and the second batch of 5 appeals is against the common order of the High Court refusing to grant a certificate for leave to appeal against the main order on the ground that the applications for certificates were not maintainable under article 133 of the constitution. The second batch of appeals, viz., Civil Appeals Nos. 188 to 192 of 1964, were not pressed and, therefore, they are dismissed, but in the circumstances without costs.
The facts are as follows : The Indore Malwa United Mills Ltd., the appellant, is public limited company incorporated under the Indore Companies Act, 1914, and it has registered office at Bombay. It is engaged in textile industry. For the assessment years 1940, 1941, 1942, 1943 and 1944, it was assessed to industrial tax under the Rules. The Assessing Office held that the appellant had failed to account for the shortage of large stock of yarn and valued that stock at different rates for the five years - the details are not necessary for the disposal of these appeals - and added the same to the assessable profits of the respective assessment years. The assessee preferred appeals against the order of the Assessing Officer to the Appellate Authority, which confirmed the order of the Assessing Officer with s light modifications in respect of the 'Unexplained shortage of yarn.' Against the orders of the Appellate Authority the assessee preferred 5 appeals to the High Court. The High Court accepted the Appellate Authoritys conclusion as regards the shortage of yarn, but held that the percentage of allowances given by it was not based on any material. The High Court remanded the matter to the Assessing Officer for trial and disposal subject to the directions given by it. Hence the appeals.
The contentions of Mr. A. V. Viswanatha Sastri, learned counsel for the appellant, may be summarised thus : (1) Though all the relevant registers pertaining to the assessees business were filed before the Assessing Officer and which, if closely scrutinized, would establish that the entire yarn produced had been accounted for, neither the assessing Officer, the Appellate Authority nor the High Court rejected any of the account books on scrutiny, but relied only upon the two account books, namely, the sale Contract Register, which only gives the nominal weight, and the Daily yarn Production Register, which gives an inflated version of production, and came to the conclusion that the difference found between the yarn produced as shown in the Yarn Production Register and that deduced from the Sale Contract Register was not accounted for by the assessee; this conclusion, the argument proceeded, was arrived at by ignoring the relevant evidence and relying upon irrelevant or at any rate inconclusive evidence.
(2) The Sale Contract Register contains entries made even before the cotton was purchased; the entries only represent the estimate and are made on the basis of the quality and the quantity required by the buyer, and that they invariably show lesser than the actual weight shown in the Actual Cloth Production Register. The Sale Contract Register, though it is relied upon for preparing the profit and loss account and for maintaining the opening and closing stocks, must, therefore, give place to the cloth Production Register which gives the actuals.
Learned counsel for the respondents, on the other hand, contended that the Assessing Officer rejected the Registers other than the Sale Contract Register and the Yarn Production Register and that, though the Appellate Authority and the High Court did not in terms reject the said Registers, they relied upon the said two Registers maintained by the appellant himself and, therefore, the findings arrived at by them are findings of fact which should not be disturbed in appeal under article 136 of the constitution.
To appreciate the contentions of the parties it is necessary at the outset to notice briefly the process of manufacture. Before the commencement of the manufacture, cotton is purchased. Then, the cotton is spun into yarn. Thereafter, it is diverted to the manufacture of cloth through the winding and warping and weft sections. The surplus yarn is sent to the reeling section for the purpose of selling it as yarn. During the stage the cotton is spun into yarn, it undergoes a loss in the form of dust, dirt, Kiti, unripe cotton, short length fibres, soft waste, thin fiber that evaporates in the air, etc. The weight of the yarn spun is necessarily less than the weight of the cotton purchased. During the production of cloth, the yarn under goes a process of sizing which adds to the weight of the yarn, but it also involves a certain loss of yarn in the form of waste that occurs in all the departments, i.e., winding, warping, sizing, drying-in, weaving and reeling. Many imponderables, therefore, enter into the process of spinning yarn and weaving cloth which reduce the weight of the yarn that finally enters into the making of the cloth.
The assessee kept various registers which give the particulars of the cotton purchased, the cotton issued for spinning into yarn, yarn produced daily, yarn sent to the reeling section and the actual weight of the cloth produced. The following registers are maintained by the assessee : (1) Cotton Purchase Register : (2) Cotton Issuing Register; (3) Daily Production Register; (4) Warping and Winding Register and Weft Register; (5) Reeling Production Register; (6) Actual Cloth Production Register; and (7) Sale Contract Register. Besides these registers, it is conceded that there are also other registers. If these registers are correctly maintained, they reflect the entire process of manufacture of the cloth from the time the cotton is purchased to the time the cloth is manufactured. They also reflect the losses and the accretions made to the yarn of the cloth during the manufacturing process. The Sale Contract Register does not give the actuals. The contracts for purchase are ordinarily placed far in advance of the manufacture. The entries relating to weight in the Register are only the estimate made on the basis of the length of the cloth ordered. Though the entries in the said Register are relied upon for the purpose of sale and for taking stock, they must necessarily give way to those in Actual Cloth Production Register, if the said Register is reliable. In the absence of such a register or in case the said register is rejected for good reasons, the sale Contract Register can certainly be relied upon after making the necessary adjustments. What is important is that any tribunal whose duty it is to ascertain the quantity of yarn produced has to consider all the relevant reasons and come to the conclusion one way or the other on the basis of the accounts accepted by them and other relevant evidence. The tribunals in giving value to the entries in the registers, shall also consider the explanation and the reasons given by the assessee for the fluctuations found in the registers.
The Assessing Officer, the Appellate Authority and the High Court only relied upon the entries in the Sale Contract Register and the Daily Yarn Production Register for the purposed of ascertaining the unexplained shortage of yarn, though they differed in the matter of giving allowances for the count deviation, etc. The Assessing Officer, in his order relating to the assessment year 1940, give reasons for discarding the books and records of the assessee in regard to quantitative particulars. But the Appellate Authority and the High Court did not expressly reject the said documents, and indeed they relied upon the entries in the Sale Contract Register as well as those in the Daily yarn Production Register. For the subsequent Years, even the Assessing Officer did not reject the registers. Nor did the Appellate Authority or the High Court reject the said registers. The assessee filed before the authorities concerned all its registers reflecting the process of the manufacture at the various stages. It was the duty of the authorities to definitely come to one conclusion or the other in regard to the reliability of every one of the relevant accounts filed by the assessee.
In the absence of any such finding, it was not open to them to pick and choose some of the registers which were more favorable to the revenue. In choosing the Sale Contract Register, where only nominal weight was given, and ignoring the actuals register, they had accepted notional figures in preference to the actuals without holding that the actuals were not true figures. In accepting the figures in the Daily Yarn Production Register they had not considered the reasons given by the assessee why inflated figures were shown therein. They could accept the assessees explanations or reject them or they could check the entries therein with reference to the other registers. But they had done none of these things. They had also not considered the explanation offered by the assessee why the weights in the Sale Contract Register would necessarily be less than the weights given in the Actual Cloth Production Register. Being tribunals of fact, it was their duty to consider all the accounts, having regard to the arguments advanced and the explanations given by the parties, and come to their own conclusion. But as they had not done so, we think that this is a fit case t give them another opportunity to do so. The High Court remanded the matter to the Assessing Officer and directed him to give Opportunity to the appellant-company to produce materials with reference to the three points mentioned in its judgment. In the aforesaid circumstances, we think the scope of the enquiry before the Assessing officer should not be limited in the manner by the High Court. The Assessing Officer is directed to consider afresh the entire material that has already been placed before him, and such other material such as registers which have been maintained but are admittedly not produced, and other relevant evidence as may be brought before him, and come to a conclusion in regard to the question of unaccounted yarn in the light of the directions given by this court and those given by the High Court in other matters. The Assessing Officer shall not in any case increase the tax liability on this point over and above that he has initially assessed.
In the result, Civil Appeals Nos. 183 to 187 of 1964 are allowed with costs, one set.
Civil Appeals Nos. 183 to 187 allowed.
Civil Appeals Nos. 188 to 192 dismissed.