Rastogi, J. - (1.) THIS is a reference under Section 256(2) of the I.T. Act, 1961, and the Income-tax Appellate Tribunal, Delhi Bench 'C', Delhi, has referred the following two questions for the opinion of this court: "(1) Whether, on the facts and circumstances of the case, the Tribunal was legally justified in rejecting the account books of the assessee ? (2) Whether, on the facts and circumstances of the case, the Tribunal was justified in upholding addition to the extent of Rs. 25,000 to the returned income ?"
(2.) M/s. Bharat Milk Products, Gulaothi, District Bulandshahr (hereinafter referred to as " the assessee") is a proprietary concern of Shri H. C. Gupta. The assessee is engaged in the manufacture of condensed milk, cream, khova and skimmed milk. The assessment year involved is 1966-67, the previous year ended March 31, 1966. On an examination of the accounts, the ITO found that the purchases and cash sales were not verifiable and that no day-to-day production and manufacturing record had been maintained. Accordingly, he invoked the proviso to Section 145(1) of the Act and on the basis of the milk purchases and sugar consumed as also the past record, he worked out the shortage in production at 76,376 kgs. and thus made an addition in the sale price of loose condensed milk at Rs. 2.65 per kg. On appeal, the AAC took the yield of condensed milk at 25 per cent. as against 35 per cent, of raw milk taken by the ITO, He further allowed two per cent. as wastage on sugar. The shortage thus came to 19,077 kgs., the value of which was taken at Rs. 50,000 in found figure at the average selling rate of Rs. 2.65 per kg. The assessee was thus given a relief of Rs. 1,51,000. Both the assessee and the department preferred appeals against the decision of the AAC. In the department's appeal the Appellate Tribunal took into consideration the fact that for the first three assessment years, that is, 1962-63 to 1964-65, the assessee did not maintain any accounts and the assessments were made on estimate. As for 1965-66, the matter was still pending. The ITO had not pointed out any parallel case while the assessee had cited the case of Healthways. The yield of condensed milk shown by M/s. Healthways was 25 per cent. and thus, in the opinion of the Appellate Tribunal, the AAC was justified in calculating the yield on that basis. As for the shortage of sugar allowed by the AAC as well, the Appellate Tribunal agreed with him. Further, the Tribunal accepted the assessee's contention that since no cash sales had been made, there was no question of such sales not being verifiable. However, in the absence of a day-to-day production or manufacturing record, the application of the proviso to Section 145(1) was upheld and the relief allowed by the AAC was confirmed.
(3.) COMING to the assessee's appeal, in which the addition sustained at Rs. 50,000 was challenged, the Appellate Tribunal found that in the yield shown by the assessee and that shown by the comparable case, there was a difference of 2.5 per cent, and the assessee had not been able to explain that difference. However, on a consideration of all the facts it was found that the price of the short yield of 10,000 kgs. should not be taken at the average selling price of Rs. 2.65 per kg. of loose condensed milk. In its opinion, it is just as likely that what seems to be short yield might have been occasioned by inflation of purchase. If that be so, the correct course should be to add back an amount based on purchase rate. In the nature of things, we are of the view that it is difficult to hold one way or the other. Taking all in all, we are of the opinion that an addition of Rs. 25,000 can be maintained and we order accordingly. Hence, now, at the instance of the assessee, this reference has been made to this court. It was submitted before us on behalf of the assessee by Dr. K.B. Bhatnagar, advocate, that the accounts of the assessee could not be rejected merely on the ground that the assessee did not maintain any day-to-day manufacturing or production account or that the yield disclosed by him was less by 2.5 per cent, when compared with the yield shown by the comparable case. It was emphasised that there was no material before the Appellate Tribunal for sustaining the addition to the trading account at Rs. 25,000 and it has done so only on the basis of conjectures and surmises. Another submission made was that in the absence of any finding that the method of accounting adopted by the assessee was incomplete or defective, his accounts could not be rejected.;