MAHADEVAPPA AND CO G Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Tribunal, Madras Bench "A", has referred the following question of law :

(2.) THE facts leading up to the reference may be briefly stated : THE assessee is a firm, dealing in kapas (unginned cotton), among other things, with its head office at Davangere and a branch at Hubli. It purchases kapas and, after ginning, sells it as lint. During the previous year relevant for the asst. yr. 1956-57, considerable disparity was noticed in the results disclosed in respect of trading in kapas and cotton at Davangere and Hubli. On a closer examination of accounts, the ITO found that on the last day of the accounting year, ending on November 14, 1955, a sum of Rs. 4,87,973 had been credited to the account of one Sharanappa, the assessee's purchasing agent, and a corresponding sum debited to cotton and kapas account. This amount was claimed to be the cost of 18,217 maunds of Jayadhar and Lakshmi varieties of cotton purchased by the assessee. In support of such a claim a manuscript bill signed by the said Sharanappa was produced. As that bill disclosed only a sum of Rs. 4,55,441, the assessee, on being called upon to explain the discrepancy, stated that the details could be got from the said Sharanappa. Later, Sharanappa produced another bill for Rs. 4,87,973, showing the cost of 18,270 maunds of cotton at Rs. 750 per candy. Since the details were not available, the assessee, who was called upon to furnish them, pleaded its inability to do so. Among other things, it was stated by the assessee that, in the absence of the clerk who wrote the accounts, it would not be possible to furnish an explanation regarding the sale proceeds of the cotton seeds that might have been realised by the ginning of kapas so purchased. It was also mentioned that the sale proceeds of cotton seeds might have been accounted for in the subsequent years.

(3.) THE first appeal by the assessee was dismissed. On further appeal to the Tribunal, a contention was urged that for the asst. yr. 1958-59, cotton seeds to the extent of 17,020 maunds had been shown in excess and that had come out of the stock in the year under consideration. As the assessee admitted that no closing stock of cotton seeds had been shown in the year under consideration, the Tribunal retained an addition of Rs. 70,000, on account of the cotton and kapas and confirmed the addition of Rs. 16,000 in regard to the gunnies account. THE assessee was accordingly assessed to tax.