SRINIVASAN, J. - (1.) TWO questions have been referred to us under section 66(2) of the Income Tax Act, 1922 " 1. Whether on the facts and in the circumstances of the case there was any material before the Tribunal to justify an addition on the ground that the assessee's books did not show the correct consumption of chlorate in the manufacture of matches "
(2.) IF the answer to question No. 1 is in favour of the assessee, whether on the facts and in the circumstances of the case, there are materials to justify the rejection of the book results and to invoke the proviso to section 13 of the Income-tax Act " " * The assessment years in question are 1947-48, the accounting year for which is the calendar year 1946, and 1949-50, the relevant calendar year being 1948. In respect of the assessment year 1947-48, an assessment was originally made on August 2, 1948, and the net income of Rs. 32, 433, returned in respect of the match manufacturing business of the assessee was accepted. Subsequently in 1953, proceedings were initiated under section 34 of the Act. The Income-tax Officer concluded as a result of these proceedings that there was an escape of the assessee's income from assessment, principally on the basis that the consumption of chlorate for the manufacture of matches was excessive. In coming to the conclusion, he relied upon the decision of the Appellate Tribunal in the appellate proceedings relating to the assessment for the year 1948-49 wherein the Appellate Tribunal had held that a consumption of 15 pounds per 100 gross match boxes was reasonable. The Income-tax Officer thought that the accounts were defective in that the issues of chlorate could not be correlated to the production of matches and that the average consumption varied from month to month. It may be mentioned here that what set afoot the proceedings under section 34 was the suspicion that a certain quantity of potassium chlorate had been consigned by the assessee to Pattukottai. It was apparently suspected that this chemical was being diverted for other uses. It is not necessary to go further into this matter except to point out that in appeal the Assistant Commissioner decided that the charge that the appellant was diverting the chlorate to other uses was not established. The Income-tax Officer, however, added a sum of Rs. 12, 000 to the income for this assessment year. In a similar manner, for the assessment year 1949-50, on the ground that there was excess consumption of chlorate, a sum of Rs. 15, 000 was added to the returned income. The Appellate Assistant Commissioner in the appeals before him reduced the addition to Rs. 8, 000 for the first year. For the second year, he directed the Income-tax Officer to recalculate the addition on the basis of the average purchase price of the chlorate as against the price of Rs. 1-4-0 per pound, which had been adopted by the Income-tax OfficerAppeals were taken to the Income-tax Appellate Tribunal. The Tribunal, while conceding that a uniform standard for chlorate consumption could not be adopted by reason of the very nature of the trade, was still of the view that there was a case for the estimation of the chlorate consumption. It purported to adopt such consumption as 17 pounds per 100 gross of matches and directed the recomputation of the additions to be effected on this head On the directions of this court, the Appellate Tribunal has referred the two questions set out above for the decision of this court In the statement of the case, the Appellate Tribunal pointed out that for the calendar years 1946, 1947 and 1948, respectively, the average consumption worked out to 24.50 pounds, 18.70 pounds and 22.80 pounds per 100 gross matches.
(3.) THE calendar year 1947 is not the subject matter of this reference and has been included for the purpose of facilitating comparison of the average consumption in the different years. THE learned counsel for the assessee has pointed out that the average worked out for the calendar year 1946, which is given as 25.50 in the statement, is incorrect and that the correct figure is only 19.40 pounds per 100 gross matches for that year. THE mistake arose for the reason that in taking the total amount of chlorate consumed for the year, due credit was not given to the closing balance on hand. This defect is pointed out in the appellate order of the Assistant Commissioner. On so reworking the rate of consumption, it is seen that the average for this year is only 19.40 pounds. This is conceded by the learned counsel for the Department. It is clear, therefore, that the average consumption for these three years which are 19.40, 18.70 and 20.80 are not very much at variance with each other and that solely from these figures no inference of excessive consumption could be drawnTHE reason, however, for holding that addition to the returned income was called for appears from the statement of the case to be that the assessee was maintaining a daily mixture account in the absence of which the correlation of the issues of the chemical with the production could not be established. It was " in the absence of such important record " that the Tribunal proceeded to hold that the proviso to section 13 was attracted. This reasoning is strangely at variance with the observations of the Tribunal in its appellate order. THEre the Tribunal observed " THE difficulties in fixing a percentage for all manufacturers are numerous. THE consumption of chlorate is acknowledged on all hands to vary from manufacturer to manufacturer, no doubt, within reasonable margin, depending upon the territory for which the matches are made to be sold in damp places require a larger proportion than relatively drier areas......In cottage industries where machinery are not much in use, dipping has to be necessarily manual only, with the concomitant absence of uniformity in the quantity of mixture consumed in each dip if the dip is deeper more chemicals and, therefore, more chlorate will be consumed. Again, the type of glue used either throughout the year by the same manufacturer or by different manufacturers in the same year determines, through its viscosity, the quantity of chemicals that go into the dip. In the face of these numerous difficulties, it is indeed unsatisfactory to fix any hard and fast formula for the chlorate consumption....... " * ;