C.K.Banerji, J. - (1.) This reference under Section 256(2) of the I.T. Act, 1961, at the instance of the assessee, Siddheswari Cotton Mills P. Ltd., Calcutta, relates to the assessment year 1961-62. The relevant accounting year is the year ending 31st December, 1960.
(2.) The assesseee is a private limited company and runs a weaving mill, It purchases yarn from market and weaves that yarn into cloths (dhoties and sarees). During the course of examination of the books of the assessee for the relevant accounting year, the ITO noticed that the production account disclosed a wastage of 9.4% while in the immediately preceding year the wastage claimed by the assessee and accepted by the AAC was 8.3%. When required to explain the higher wastgage for this year, the assessee's explanation was similar to that given in the immediately preceding year, that the yarn consumed was coarse and resulted in a higher wastage. The ITO did not accept the explanation of the assessee as there was lesser consumption of coarser counts of yarn in the relevant year and an increase in the consumption of fine and superfine counts of yarn. The ITO, accordingly, made an addition of Rs. 34,000 valuing the excess wastage at the average rate of sale price of cloth.
(3.) The assessee preferred an appeal before the AAC and contended that the ITO did not give any valid reasons for not accepting the higher wastage. The AAC was of the view that several factors, such as, moisture, dust contents of the cotton, the efficiency of the blowing, carding and spinning of yarn resulted in wastage. He did not consider the extra wastage of 1.1% as excessive and deleted the addition.;