JUDGEMENT
K.S. Viswanathan, Accountant Member -
(1.)WE find it Convenient to dispose of both these appeals by a common order. Both are cross-appeals by the assessee and the department. The assessee is aggrieved by the addition sustained to the production account while the department wants the disallowance of interest to be upheld.
(2.)The assessee is a registered firm manufacturing certain types of fertilizers and insecticides. It appears one of the products is B.H.C. 10% dust. It appears that this is produced by adding water 10 times. The Income-tax Officer found that the main raw material i.e. B.H.C. Tech. consumed was .116.59 tons and i.e ought to have produced 165.9 tons of dust. They had produced only 1,137.5 and so there was a shortfall of 28.35 tons. He enquired the reasons for the shortfall. He was not satisfied with the reasons given by the assessees and so he concluded that there is an understatement to the extent of 28.35 tons. He estimated the market value of this quantity at 22,935. This was included in the assessment.
The Appellate Asstt. Commissioner was satisfied that the addition was proper. So he upheld the addition.
(3.)THE assessee is on further appeal before us. Sri Swamy submitted that it is not always that the production is exactly 10 times of the quantity of raw material used. THEre is likely to be some shortages, leakages which are inherent in the nature of the business. He also submitted that sometimes a little higher quantity of the raw material would have to be used in order to maintain the quality. He pointed out that in similar cases there is an understanding that the assessee would have 3% handling wastage. He brought to our notice an agreement between another firm having a similar business M/s. Revati Pulverisers and E.I.D. Parry. According to the contracts between these two, they were allowed 3% handling wastage. If that is taken into account, he submitted the production is reasonable.
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