Rajes Kumar, J. - (1.) The Income Tax Appellate Tribunal has referred the following two questions under Section 256(2) of the Income-tax Act (hereinafter referred 10 as "Act") relating to the assessment years 1982-83 for opinion to this Court: "(1) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in disapproving the Assessing Officer's action in making addition of Rs. 89,000/- should be Rs. 89,500/- on account of income from undisclosed sources within the meaning of Section 68 of the Income-tax Act, 1961? (2) Whether on the facts and circumstance of the case, the Tribunal was correct in law in holding that no separate addition under the head 'income from undisclosed sources' within the meaning of Section 68 of the Income-tax Act, 1961 is called for?"
(2.) The brief facts of the case are as follows: The assessee/opposite party (hereinafter referred to as "assessee'') is a partnership firm and was deriving income from the business of manufacture/assembly of diesel engine sets and diesel generating sets. For the year under consideration, the Assessing Authority has made two additions one for Rs 1,50,980 towards undisclosed profit on the sale of fuel injector equipment and a sum of Rs. 89,500/- towards unexplained cash credit under the head 'Dealership Security Account'. For the aforesaid two additions, the assessee filed appeal before the Commissioner of Income-tax (Appeals) which was allowed in part. The Commissioner of Income-tax (Appeals) reduced the addition of Rs. 1,50,00 to Rs. 89,000/- and has deleted the addition towards unexplained cash credit for Rs. 89,500/-.
(3.) The finding of the Commissioner of Income-tax (Appeals) is as follows: "I have heard the learned counsel and seen the facts of the case and gone through the details on file. Looking into the totality sdof circumstances, it appears that the assessee's version cannot be accepted in toto but at the same time the I.T.O. also appears to have taken a very extreme view totally disregarding the special circumstances prevailing in the assessee's case, for example, his recent entry in this line of business, inexperience, low sales, refund of deposits, cancellation of ISI recognition certificate, absence of power connection forcing the assessee to use its own engine for working its machineries so on so forth, apparently the consumption shown by the assessee is on a very high side. For 273 engines produced he has utilized 1105 injectors. Even if the theory of replacement before sale due to use and consequent damage by the assessee's own user is accepted, an additional 273 complete injectors can be considered to have been consumed. Of course, certain observations of the I.T.O., like paucity of staff and sale out of books are not supported by facts. The assessee has debited a sum of Rs. 82,210/- in the wages A/C. Moreover, replacement for some of the customers cannot be ruled out because a new manufacturer in the line has to create goodwill in the market. If a credit for 273 more injectors is given, it will amount to extra consumption of 273 injectors valued at 273 x Rs. 170 - 46,420/-. When reduced from the addition of Rs. 1,89.080/- extra consumption would come to Rs. 92,650/-. Some margin can be give for defective pumps as well as from replacement to buyer. The addition on account of deposits is to be considered along with this item. The original deposit totaled to Rs. 93,700/-. The ITO has added only the balance at the end of the year amount to Rs. 89,500/-. The 20th ground of appeal to the effect that this amount to double addition sounds plausible. Thus, I am inclined tosd give assessee credit for additional 273 pieces valued at Rs. 46,410/- and some margin for the pumps and free replacements to buyers and restrict the disallowance for extra consumption at Rs. 89,500/- which will also cover the unexplained deposits covered by ground Nos. 1 to 4. Appellant's story of deposits by dealers is unconvincing and details discussed by the ITO totally disprove it I am of the view that the sale out of the books has been ploughed back in form of deposits. A separate addition for the same would , accordingly be deleted. In the net result the additions for deposits as well as extra consumption would be restricted to Rs. 89,500/- and the net relief for ground Nos. 1 to 4, 5 to 10 and 20 would come to Rs. 1,50,980/-. The ITO is accordingly directed to restrict the disallowance under these head to Rs. 89,500/-.";