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Jagan Nath Gurbachan Singh Vs. Ito - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Amritsar
Decided On
Reported in(2002)73TTJ(Asr.)878
AppellantJagan Nath Gurbachan Singh
Respondentito
Excerpt:
in all the above-mentioned appeals, either the assessee or the revenue has taken two substantive grounds. the first being application of proviso to section 145(1) in cases where the assessing officer has observed that the assessee has shown low yield in the process of manufacturing and processing raw cotton. the second ground taken in all the appeals, relates to the reasonableness of yield percentage to be fixed in the professing and ginning of cotton.the individual cases were discussed with the learned counsel, who have appeared and the suggestions came from majority of the counsel for having a uniform decision and uniform yardstick on the above-mentioned issues. we are of the opinion that in the taxation systems there should be absolute transparency as well as uniformity. we are of the.....
Judgment:
In all the above-mentioned appeals, either the assessee or the revenue has taken two substantive grounds. The first being application of proviso to section 145(1) in cases where the assessing officer has observed that the assessee has shown low yield in the process of manufacturing and processing raw cotton. The second ground taken in all the appeals, relates to the reasonableness of yield percentage to be fixed in the professing and ginning of cotton.

The individual cases were discussed with the learned counsel, who have appeared and the suggestions came from majority of the counsel for having a uniform decision and uniform yardstick on the above-mentioned issues. We are of the opinion that in the taxation systems there should be absolute transparency as well as uniformity. We are of the opinion that the assessees should be heard in advance on various yardsticks of investigations and various methods of investigations so that he is in a position to make satisfactory and intelligent understanding of the issue that may arise subsequently before the tax authority.

The learned counsel argued the cases and apprised us with the material available as well as legal position regarding invocation of proviso to section 145(1) of the Income Tax Act, 1961. The learned Departmental Representative also filed paper book after collecting the information from the assessing officer regarding the question of yield and process of ginning of cotton. The learned counsel argued that the assessees are maintaining stock details in stock registers, which is showing daily position of stocks. It was argued that this stock register is showing the position of Narma ginned and the cotton obtained after the ginning process. It was argued before us that the assessing officer has not pointed out any defect whatsoever in the books of accounts and, therefore, proviso to section 145(1) of the Act does not apply under the facts and the circumstances of the cases mentioned above. It was argued that the proviso to section 145(1) comes into play in case the accounts are found not to be correct or complete to the satisfaction of the Income Tax Officer and the method of accounting employed by the assessee is such that in the opinion of the Income Tax Officer income cannot be properly deduced. Reliance was placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of Tara Singh & Co. v.CIT (1981) 127 ITR 819 (P&H). The learned counsel prayed that the findings of Punjab Trading Co. Ltd. v. CIT is applicable only if correct profits cannot be deducted. It was further argued that this case has been discussed in the case of Jhandu Mal Tara Chand Rice v.CIT (1969) 73 ITR 192 (P&H) wherein it has been held that keeping of a day-to-day register could not help in determining of correct profits of the business. The learned counsels further pleaded that even if the proviso to section 145(1) is to be applied, the assessing officer has to act judicially and not arbitrarily.

The learned counsel, Shri A.K. Mangal, pleaded that the assessee is maintaining stock register and slight variation in yield cannot be treated as a defect, which can result in invocation of section 145(1).

The learned counsel pleaded that if the pleading of the maintenance of books of accounts is not under doubt and isolated defect pointed out by the assessing officer will not give him the necessary power under section 145(1) to make the specific addition.

We are conscious of the fact that the important issue is to be decided and, therefore, we have heard the arguments of the learned counsels.

The learned counsel Shri Ashwani Kalia, pleaded that there cannot be any uniformity on yield percentage and the only best interpretation will be the result shown by the books of accounts of the assessee and in case there are no major defect in the books of accounts, the yield shown by the assessee should be accepted.

The learned counsel, Shri R.K. Bansal, also pleaded that the low yield should not be the basis for application of proviso to section 145(1) of the Income Tax Act, 1961.

The learned Departmental Representative, on the other hand, pleaded that the Hon'ble Punjab High Court has held in the case of Punjab Trading Co. Ltd. v. CIT (1964) 53 ITR 335 (P&H) that in case proper stock register is not maintained in cotton ginning business and position of day-to-day stock register does not reflect stage-wise stock position and the assessee has shown lower yield than previous year then these are sufficient basis for application of flat rate. The learned Departmental Representative pleaded that in cases where various manufacturing processes resulted into products and by-products, it is the duty of the assessee to account for both products and by-products and if the assessee fails to account for these products, the assessing officer will be justified in invoking the section 145(1) of the Income Tax Act.

Before we decide the issue, we are of the opinion that we should discuss section 143(3) of the Income Tax Act, 1961. Section 143(3) deals with the assessment of an income. Section 143(3) reads as follows : "143(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the assessing officer may require on specified points, and after taking into account all relevant material which he has gathered, the assessing officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him (or refund of any amount due to him) on the basis of such assessment." The section in itself gives power to the assessing officer to assess an income after taking into consideration evidence produced by the assessee and the evidence collected by the assessing officer and/or relevant material, which is available on record. The assessing officer will make an assessment to total income. The assessment does not mean acceptance of the return of the appellant. We are of the opinion that court should read in harmony section 143(3) with section 145. These two sections cannot be and should not be applied in isolation. This matter, in fact, came before the Hon'ble Madras High Court in the case of Sree Shanmugar Mills Ltd. v. CIT (1974) 96 ITR 411 (Mad). The Hon'ble Madras High Court was dealing with section 145 and section 143(3) of the Income Tax Act. The Hon'ble Madras High Court has observed that if the books of accounts are unreliable, false, incorrect or incomplete, the officer has the power to reject such books and that power can be taken from section 143(3) of the Income Tax Act. Sections 145 and 143(3) have to be read in harmony and has not to be read in isolation. Under no circumstance section 145 will have overriding effect and make section 143(3) inoperative and ineffective. In a given case, section 145 is not attracted but still the assessing officer has power for making the assessment of income, according to his best judgment under section 143(3) of the Income Tax Act. We would like to produce the following para of the judgment of the Hon'ble Madras High Court, which makes the entire position more clear and more vivid : "On a proper interpretation of section 13 and section 23 the correct legal position appears to be this. If the account books are unreliable, false, incorrect or incomplete, the Income Tax Officer has the power to reject such account books, but that power is traceable to section 23(3) and not to the proviso to section 13. To make this position clear the legislature has now specifically provided such power in section 145(2) apart from the proviso to section 145(1) which corresponds to the proviso to section 13. After the enactment of section 145 of the new Act if the accounts are found to be incorrect and incomplete the case would fall under sub-section (2) of section 145 and not under the proviso to sub-section (1) of that section. There may be cases where the method of accounting regularly employed was acceptable to the Income Tax Officer as the proper method, but the entries in the books of account may be found to be false or fabricated. In such a case the Income Tax Officer has to reject the books of account under sub-section (2) and to estimate the income under section 143(3) or section 144 without calling in aid the proviso to section 145(1). Conversely the account books may be accepted as true but the method of accounting may be rejected by the Income Tax Officer as improper. In such a case the proviso to section 145(1) will have to operate. This shows that the legislature has kept in mind the distinction between impropriety of the method of accounting and the falsity of the account books, and that proviso to section 13 deals with only impropriety of the method of accounting leaving the falsity of account books to be dealt with under section 23(3). The view taken in some of the decisions that the Income Tax Officer has to act only under the proviso to section 13 to reject the account books as being false or incomplete. In our view, ignores the above distinction. As already stated, section 23(3) gives the power to the Income Tax Officer to collect and act on such evidence as considered necessary, and this power naturally implies the power to reject the evidence including the books of account and, therefore, it is not necessary for the Income Tax Officer to invoke the proviso to section 13 for that purpose. The proviso to section 13 relates to the method of accounting alone and not to the acceptance or rejection of the books of account. It is true that section 13 cannot altogether be divorced from section 23(3) for it is only in an enquiry under section 23(3), section 13 can operate. The proviso to section 13 has to be resorted to by the Income Tax Officer when the account books are rejected as to their method of accounting but accepted as to their facts. Thus, there is no conflict between section 23(3) and section 13, and in proper cases they operate together." The important word in section 143(3), which was judicially analysed by various courts including the Hon'ble Supreme Court in "assessment" of income. The Hon'ble Supreme Court has broaden the definition of 'assessment' in the case of CIT v. Balkrishna Malhotra (1991) 81 ITR 759 (SC) and has given wider meaning which includes the computation of income, determining the amount of tax and also the entire process involved in computation of such income and such tax payable or such amount refundable to the assessee. As we have clearly mentioned that in no circumstance, the assessment gets meaning of accepting the return of income. Harmoniously reading of section 143(3) will lead to the conclusion that the assessing officer has to process and analyse the material gathered by him and material supplied by the assessee and the process of analysis will determine the ssessment of income of the assessee. In fact, section 145 is supplement to section 143(3).

We are, therefore, of the opinion that even addition to the income regarding unexplained low yield can be made by the assessing officer under section 143(3) of the Act.

The second discussion on the issue is regarding invocation of section 145(1) of the Income Tax Act. Section 145(1) along with its proviso reads as under : (i) Income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall be computed in accordance with the method of accounting regularly employed by the assessee : that in any case where the accounts are correct and complete to the satisfaction of the assessing officer but the method employed is such that, in the opinion of the assessing officer, the income cannot properly be deducted therefrom, then the computation shall be made upon such basis and in such manner as the assessing officer may determine." The return of income of an assessee is supported with statement of accounts drawn according to the principles of accountancy. In India, generally the principles of double entry book keeping read with mercantile system of accounting is used by the assessees and books of accounts are maintained in conformity with this system of accounting.

Various methods are adopted for costing of stock inventory sometimes LIFO system, sometimes FIFO system, sometimes cost system or sometimes no system. It is now established legal system that the preparation of statement of the transaction should be gathered by the subsistence and not by the legal formation and should be framed by the accounting formation. The working of profit is a very sensitive situation in the complicated system of entries. The accounts may be perfectly maintained but casting of inventory may change the entire colour of gross profit in trading and manufacturing accounts. The stock may be maintained but non-reflection of by-products and proper and correct recording of the yield will positively lead suspicion in the mind of the assessing officer and explanation that such stock is embedded in wastage will require an investigation from the assessing officer. The moment the enquiry is made, the assessing officer has to get material on record, which will satisfy him regarding accountability of the stock. In case such accountability and explanation is either missing or is not forceful enough, the assessing officer is within his right to estimate an addition both under section 145(1) as well as under section 143(3) of the Income Tax Act, 1961.

Section 145(1) deals with method of accounting and the method is definitely different than the books of accounts. One has to make a distinction between 145(2) and 145(1). Section 145(1) deals with method of accounting and section 145(2) deals with rejection of books of account and section 143(3) deals with the assessment based on books of account. Under section 145(2), the assessing officer can reject the books of accounts, which are not reliable and which are false, inaccurate and incorrect. In case the appellant has adopted a correct method and in this method incorrect entries and false entries are recorded and entries are not recorded at all then the assessing officer can invoke proviso to section 145(1) of the Income Tax Act.

The maintenance of stock register is one of the most important ingredient for proper maintenance of accounts. If there is no quantitative and qualitative tally of stock between the purchases and sales then the suspicious feature emerges in the books of accounts and such books of accounts can be rejected by the assessing officer.

Reliance is placed on the decision of the Bombay High Court in the case of Dondiram Dalichand v. CIT (1971) 81 ITR 609 (Bom). Stock tally is more important in manufacturing business and in a manufacturing business, there should be day-to-day manufacturing and production of accounts. The assessee should be in a position to explain the stock tally of raw-material and stores vis-a-vis production of the manufactured material. This issue has been laid down by the Hon'ble Allahabad High Court in the case of Bharat Milk Products v. CIT (1981) 128 ITR 682 (AD), Punjab Trading Co. Ltd. v. CIT (supra) and Howrah Trading Co. (P) Ltd. v. CIT (1968) 67 ITR 582 (Cal). In the manufacturing process, if the appellant fails to explain the wastage, shortage, shrinkage, the assessing officer can reject the books of accounts, This principle is decided by the Hon'ble Orissa High Court in the case of Orissa Fisheries Development Corporation Ltd. v. CIT (1978) 111 ITR 923 (Ori.).

What is the importance of the yield percentage. We are taking recourse from the Indian business principles prevailing for centuries. The principles of Indian business used to be that one must make quick sale at low profit or no profit. The profit will be form the sale of Bardana. To explain this saying, sugar dealers used to sell sugar at cost so that they will get the bumper sale and their profits came from the sale of jute bags used in sugar packing. The accountability of jute bags is most relevant query and requires satisfactory answer. The other way to look at the controversy in issue before us is that in a given case the appellant maintains stock in a perfesct manner but he has not maintained stock details of various by-products. Thus, under those circumstances, it is the duty of the assessing officer to look into the unexplained areas. In case the appellant does not record the sale, of manufactured products then the only way the assessing officer can investigate the areas is to look into the yield percentage. The assessee may maintain the stock which he wants to record and may sell the stock which he does not want to record and easily take shelter in the yield percentage then perhaps a wrong signal and results will come from the accounts and this will be absolutely against the intention or purpose of the legislature and against the principles of accountancy as well as against the spirit of section 143(3) read with section 145(1) of the Act. How can assessing officer check the reliability of the stock. There are many test checks and one of the effective test is whether all stock available either by purchasers or by manufacturing activity in the finished or semi-finished state and all by-products are entered in the stock register. One of the test-check is to examine the quantity of finished products and consumption of raw-material. This is done by looking into yield percentage.

The Hon'ble Supreme Court in the case of Chhabildas Tribhuvandas Shah & Ors. v. CIT (1966) 59 ITR 733 (SC) has settled this issue that the proper maintenance of stock register is a relevant factor. The Hon'ble Supreme Court laid law that not only stock register is to be maintained by qualitatively as well as quantitatively stock tally of the manufacturing account has to be maintained otherwise non-maintenance will become a valid ground for rejection of book results. The Hon'ble Supreme Court has settled this issue while deciding the case of S.N.Namasivayam Chettiar v. CIT (1960) 38 ITR 579 (SC). The Jurisdictional High Court has followed the same principle in Punjab Trading Co. Ltd. v. CIT (supra). It is not the maintenance of register but the net result of the maintenance of the stock register which is relevant feature for making proper analysis regarding the proper maintenance of stock register.

One of the main purpose for maintenance of stock register is to analyse the yield from raw-material to finished goods as well as accountability of byproducts, accountability of yield and reasonableness of wastage, shortage and the disposal of by-products and finished goods both in terms of quantity as well as in terms of quality. The Hon'ble Calcutta High Court in the case of Howrah Trading Co. (P) Ltd. v. CIT (supra) has held that the appellant should not only maintain day-to-day manufacturing or production account but should also be in a position to furnish a tally of raw-material and stores issued with that of matching entries regarding production of finished goods as well as other by-products. In Punjab Trading Co. (supra) low yield shown as compared to other cases, is one of the relevant situation for invoking proviso to section 145(1) of the Income Tax Act. The Hon'ble Orissa High Court in the case of Orissa Fisheries Development Corporation Ltd. v. CIT (1997) 111 ITR 923 (Ori.) has held that where there is no record or faulty and defective maintenance of stock record regarding details of wastage, shortage, shrinkage and other defects, the assessing officer will be justified in invoking section 145(1) of the Income Tax Act.

The yield becomes also relevant for arriving at correct profit because one has to accept whether there is possibility of creating the sale outside the books of accounts by tampering with the yield of finished goods out of manufacturing process from raw-material. One may maintain stock register in most perfect manner but at the same time it is easy to tamper with the yield from raw-material used in the manufacturing process. Of course, there has to be a scientific base for arriving at more rationale and scientific yield. Often, it has been observed that this rationale is not being followed by the authorities below. We are of the opinion that it is the duty of the department to be equipped with a data and information regarding yield of finished goods from the raw-material and the data should be analysed by an expert in the line who has expert and scientific knowledge in the process of manufacturing. It should not be left to the persons who are neither experts nor have any knowledge in that field. The assessing officer is within his right to make an investigation as well as inquiry if the end result of finished goods and by-products are not in accordance with the normal conditions prevailing in a particular trade. It is for the appellant to produce valid, authentic and documented evidence to justify the reasons for deviation of end results in the manufacturing process. In case the explanation submitted by the appellant is not satisfactory or is devoid of documentary and other evidence, the assessing officer should support his finding by an opinion or the report of an expert. Under these circumstances, the assessing officer can make a specific addition evaluating the unexplained portion of low yield and excess wastage and shortage. In case, he is also rejecting trading accounts by application of gross profit rate such additions should be taken part of the trading addition on account of application of gross profit rate or net profit rate. Keeping in view the above discussion, we are of the opinion that the authorities below were justified in invoking section 145(1) of the Income Tax Act.

We would also like to derive support from the finding and law laid down by the jurisdictional High Court, which is binding on all subordinate authorities. The Hon'ble Jurisdictional High Court decided this issue in the Punjab Trading Co. Ltd. v. CIT (supra). The Hon'ble High Court has laid down as follows : "Perhaps the greatest strength is derived by the Commissioner from the decision in S.N. Namasivayam Chettier v. CIT (supra) sa decision of the Supreme Court by Kapur and Hidayatullah JJ., the former of whom was a party to the judgment in Pandit Boss case, cited above and who delivered the judgment in this case. The case of Pandit Bros. was cited in the course of arguments and Kapur J. observed that it cannot be said that that case laid down as a proposition of law that the want of a stock register by which a proper check could be made was not such a serious defect as to make the proviso to section 13 inapplicable. It was further held that it is for the income-tax authorities to consider the material which is placed before them and if after taking into account in any case the absence of a stock register coupled with other materials they are of the opinion that correct profits and gains cannot be deducted then they would be justified in applying the proviso to section 13. It was further held, following an observation in CIT v.Mxmillan & Co., that the Income Tax Officer, even if he accepts the assessee's method of accounting, is not bound by the figure of profits shown in the accounts.

In my opinion, it cannot possibly be said that in the present case there was no material for invoking the proviso to section 13. The reason given by the Income Tax Officer and even more so the elaborate analysis made by the Appellate Assistant Commissioner, clearly show that the yield of ginned cotton per maund of raw cotton in the assessee's ginning factories for the years in question could not possibly be correct, and even if it were open to us to question the findings of these officers which were upheld by the Appellate Tribunal, I do not think it would be possible to differ from their conclusions. I also consider that in a business of this kind, which merely consists of buying raw-material and selling it after processing, the absence of a register showing the daily working of each factory is just as material as the absence of a stock register in the case of an ordinary merchant.

I am, therefore, of the opinion that the question referred to us must be answered in the affirmative. The Commissioner will have his costs from the assessee, counsel' fee Rs. 250." To conclude, we would like to refer the decision of the Hon'ble Supreme Court in the case of CIT v. British Paints India Ltd. (1991) 188 ITR 44 (SC). The Hon'ble Supreme Court has given the following findings: "Section 145 of the Income Tax Act, 1961, confers sufficient power upon the officer nay it imposes a duty upon him-to make such computation in such manner as he determines for deducting the correct profits and gains. This means that where accounts are prepared without disclosing the real cost of the stock-in-trade, albeit on sound expert advice in the interest of efficient administration of the company, it is the duty of the Income Tax Officer to determine the taxable income by making such computation as he thinks fit.

Any system of accounting which excludes, for the valuation of the stock-in-trade, all costs other than the cost of raw-materials for the goods-in-progress and finished products, is likely to result in a distorted picture of the true state of the business for the purpose of computing the chargeable income. Such a system may produce a comparatively lower valuation of the opening stock and the closing stock thus showing a comparatively low difference between the two. In a period of rising turnover and rising prices, the system adopted by the assessee, as found by the Tribunal, is apt to diminish the assessment of the taxable profit of a year. The profit of one year is likely to be shifted to another year which is an incorrect method of computing profits and gains for the purpose of assessment. Each year being a self-contained unit, and the taxes of a particular year being payable with reference to the income of that year, as computed in terms of the Act, the method adopted by the assessee has been found to be such that income cannot properly be deduced therefrom. It is, therefore, not only the right but the duty of the assessing officer to act in exercise of his statutory power, as he has done in the instant case, for determining what, in his opinion, is the correct taxable income.

The Tribunal's order, affirming that of the assessing officer, was based on findings of fact made on cogent evidence and in accordance with correct principles. The High Court was clearly wrong in interfering with those findings.

Accordingly, we set aside the judgment of the High Court and allow the appeals of the revenue with costs throughout." We believe now that there should be a uniformity of opinion of all the subordinate courts and an effort to distinguish the facts of some cases from the decision of the Hon'ble Supreme Court will not be correct interpretation and correct judicial approach. We, therefore, are of the opinion that in a manufacturing process, percentage of yield is the relevant issue if there is no satisfactory explanation then the addition can be made either under section 143(3) or under section 145(1) of the Income Tax Act, 1961 or 143(3) read with 145(1).

The second issue to be decided is the parameter to be fixed for reviewing the yield percentage in cotton. Whether, or not the assessee has shown low yield will depend upon fixation of reasonable yield or yield according to scientific principles or according to an opinion of an expert. Shri Aggarwal, the learned counsel, main argument is that in the cotton processing the possibility of uniform results cannot be scientifically visualised. The learned counsel submitted that the manufacturing process is done by sawgin ginning and roller ginning. He argued that both the processes may result into different yield of cotton and sawgin ginning will give more wastage and less yield of cotton as compared to the roller ginning and the difference can be as high as 9.4 per cent. It is argued by the learned counsel that always record is available in the books of accounts, whether processing is made by roller ginning or by sawgin ginning. However, it was agreed by the learned counsel that by and large the processing is made by roller ginning. The learned counsel, Shri A.K. Mangal pleaded that the cotton crops comes in the market in September and the yield will also depend on the season and the picking of the cotton. He argued that yield would be less in the hotter months and in alternative, he pleaded that in April, May, June, there is more driage. He further argued that the yield will be different from year-to-year and from crop to crop. Shri R.K. Bansal pleaded that the yield also differs from area to area as well as from picking to picking. Shri Ashwani Kalia pleaded that the yield of Desi cotton is upto 38 per cent whereas the yield of Narma varies from 28 per cent to 32 per cent. The learned counsel also pleaded that yield will also depend upon the quality of raw cotton purchased and ginned in the processing of raw cotton.

The learned counsel pleaded that the assessing officers by and large are applying the yield percentage or comparable cases which will suit to them to make an addition and in some cases, they accept the yield, which is lower than the normal yield results. It was argued that taxation authorities at all level do not apply uniform yardstick while deciding the issue of yield of cotton. It was argued that lack of transparency is, quite visible when investigation is made on this account.

The learned Departmental Representative also filed paper book whereby various information were collected from various assessing officers. The learned Departmental Representative pleaded that as per the report of the assessing officer placed at page 5 of the paper book, yield of cotton is more by 1 per cent or 2 per cent in cases of roller processing than sawgin but most of the ginning is done through sawgin machineries because this process is automatic process. A comparable rate of 6 cases were given by the Income Tax Officer, Muktsar for various years, which are filed at per page 6, 7, 8, 9, 10 and 11 of the paper book. At page 14 of the paper book, the statement given by the Cotton Corporation of India regarding yield percentage of various years. Similar information was available on record regarding yield percentage of cotton of various assessees in respect of various factories located in the District of Abohar. Information was also filed regarding yield of cotton derived from various factories at Rampuraphul. Apart from the yield percentage reflected by various assessees, the learned Departmental Representative has filed the yield percentage from Markfed as well as from Cotton Cell of Markfed. At page 51 of the paper book is analysis done by Punjab Cotton Bulletin regarding statistics of cotton in the manufacturing process. The learned Departmental Representative has also filed information of yield percentage shown by the Cotton Corporation of India at per page 60 and We have gone through the entire material available on record and which was filed before us. We are of the opinion that in a situation like this a reasonable yield can be arrived at by developing following processes of investigation.

This cannot be applied in the case of the cotton yield because the cotton yield does not remain constant for each and every year and yield percentage is varied from year to year. We have examined yield chart of Bhatinda region prepared by the Cotton Corporation of India related to Muktsar region, which shows that in the assessment year 1986-87, yield was 32.738 per cent, whereas in the assessment year 1987-88 yield was 31.775 per cent. In the assessment year 1988-89, the yield was 31.143 per cent, for the assessment year 1989-90, the yield was 30.450 per cent. For the assessment year 1990-91, the yield was 29,950 per cent and same scenario is reflected in the case of cotton cell of Markfed, a unit of Punjab State Government. Therefore, this process will result into unscientific and abnormal situation of investigation and cannot be applied in this trade.

The department was supposed to maintain very important registers regarding gross profit and register for yield percentage in a particular area. These registers are not at all maintained by any unit of the Income Tax Department. Therefore, study of the comparable cases system to arrive at scientific yield percentage from the area is ruled out because this information has to be complete and then scientific data can be developed for arriving at a scientific yield percentage. In case, the department or Cotton Manufacturing Association in a particular area has maintained a register which will indicate yield of cotton, in that area then that information can be one of the vital basis for adopting a scientific yield in this industry. Otherwise, comparable case favouring to the department or favouring the assessee will not give us confidence to arrive at more reasonable and scientific estimation of yield percentage.

(3) The third information is either opinion of an expert or results of government bodies and undertakings This relates to an opinion of an expert or a neutral agency, who has meticulously maintaining records regarding processing of the cotton. We have given our finding in case of M/s. Shakti Rice and General Mills v.ITO, in ITA No. 1126 (Asr)/(1991), assessment year 1990-91, vide our order dated 16-2-1998, whereby we are of the opinion that the yield percentage fixed by government organisation is based on analysis of scientific data, principles of costing and expert report of agricultural scientists. We are of the opinion that there are two government agencies, which are maintaining such records for cotton processing. The first organisation is Cotton Cell of Markfed. A unit of Punjab Government and second organisation is Cotton Corporation of India, a public undertaking, Government of India. The yield percentage worked out by both these organisations should become the basis of reasonable yield percentage of cotton.

We have gone through the orders and records. We have examined statements of both these corporations that the yield percentage varies from season to season as well as from area to area. For 1996-97 the yield of cotton in Muktsar area shown by the Cotton Corporation of India is 30,500 per cent whereas in Malout area the yield is shown at 30.900 per cent. The yield percentage also varies from season to section.

There has to be a fiscal discipline and to develop this fiscal discipline, it is the duty of the judicial authority that the fiscal discipline should be equitable, judicious and positively transparent.

It should be understandable both to the revenue as well as to the assessee. The revenue should not cross scientific line of investigation, which will result into uncalled for additions to the income and the assessee should be under discipline so that the advantage is not taken in the garb of wastage, shortage as well as yield to divert and convert the manufactured goods into unaccounted sales. We are, therefore, of the opinion that the yield percentage of Cotton Corporation of India or Cotton Cell of Markfed, which gives information complete in all respect vis-a-vis quality of cotton and vis-a-vis area from which cotton is grown and processed, should be the basis as reasonable yield percentage in a particular area. We are reproducing below the Annexure, which will clarify our discussion, which shows yield percentage of Cotton Corporation of India in the cotton belt of Punjab. Another reason for making the yield percentage of Cotton Corporation of India as the basis is that the cotton is being supplied to various industries for ginning which are giving the result of yield percentage fixed by the Cotton Corporation of India Ltd. We are of the opinion that in case the yield is same or more than the yield percentage of cotton and other by-products, as shown by the Cotton Corporation of India, then in such circumstances, the assessing officer should accept the yield percentage and shortage as reasonable percentage and reasonable by products. The basic reasons for selecting Cotton Corporation of India as comparable case for reasonable yield are four-folds : (1) The Cotton Corporation of India is an undertaking of Government of India, and is one of the leading purchasers of cotton from various cotton belts in the country including cotton belt of Punjab. The purchases made by the Cotton Corporation of India are from cotton growers and commission agents through purchasing agencies managed by highly qualified employees.

(2) Cotton Corporation of India is maintaining complete record with respect to the stock, with respect to by-products and with respect to shortages. These details and records are maintained product-wise and area-wise. The stock details are maintained in most prefect manner and in accordance with sound principles of accountancy and the figures are available at each and every office of Cotton Corporation of India.

(3) There are certain internal audit systems and the yardstick of yield processing and other areas are developed by the best experts in this line. This is required for internal audit system to check the pilferage and misuse of raw-materials as well as finished stock and for accountability of the managers.

(4) The Cotton Corporation of India has a minimum standard of yield, which is fixed on the millers, who get the cotton for ginning and are paid ginning charges on rate contract. Such type of person are found to return a fixed quantity of cotton to the Cotton Corporation of India.

This is arrived at after obtaining information from experts and field officers of the Corporation.

We are, therefore, of the opinion that most authentic comparable cases for looking into yield of cotton and by-product will be that of Cotton Corporation of India. Only in case where yield is lower as compared to the yield of cotton and other by-product shown by the Cotton Corporation of India then alone the assessing officer can ask the assessee to explain the reasons for such lower yield and lower production of by-products like oil seeds or consequently higher shortage. In such cases, the onus is on the assessee to render an explanation which should not only be satisfactory but should also be supported with documentary evidence. There can be abnormal situation, which may result into more shortages as compared to the Cotton Corporation of India like destruction of raw-cotton or processed cotton due to fire, due to theft, due to rains, due to lack of proper storage, etc. But these abnormal situations always are happenings of events which leave full and complete evidence of their happenings. The stand regarding this abnormal happening if taken into generalistic argument or manner will not support the explanation of the appellant unless and until there is reasonable evidence available on record and produced before the assessing officer to support not only such happenings has taken place but also such documents are in a position to quantify the extent of damage as resultant of such happenings.

We direct the assessing officer to accept the yield percentage wherever it is at par or more than the yield percentage shown by the Cotton Corporation of India and the appeals are accordingly disposed of.


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