TMI Blog2009 (3) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... ENT The judgment of the court was delivered by 1. B. N. MAI-IAPATRA J.- This income-tax appeal has been preferred against the Order dated March 14,2002, passed by the Income-tax Appellate Tribunal, Cuttack Bench, Cuttack (hereinafter referred to as "the ITAT"') in IT(SS)A No. 1/CTK/1996 ( Utkal Alloys P. Ltd. v. Deputy CIT [2004] 269 ITR (AT) 20) for the block years 1986-87 to 1996-97. This court has admitted the appeal on the following two substantial questions of law : "(i) Whether, on the facts and in the circumstances of the case, the learned Third Member of the Income-tax Appellate Tribunal is correct in law in relying on the case of Haribhagat Agarwalla v. State of Orissa [1982] 51STC 355 (Orissa) with distinguishable facts and circumstances and holding that no addition can be made in the case of UAL ? (ii) Whether, on the facts and in the circumstances of the case, the learned Third Member of the Income-tax Appellate Tribunal has erred in law in ignoring the findings of the learned Judicial Member that from the rough calculation sheets presented at the time of hearing, some of the items were actually weighed and others were estimated with the assistance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. It is further argued that the decision of this court in Haribhagat Agarwalla v. State of Orissa [1982] 51 STC 355 (Orissa) has wrongly been applied by the learned Third Member to the case of the assessee-respondent. 4. Mr. S. Ray, learned counsel for the respondent, submits that law is well settled that no addition can be made to the total income of the assessee on the basis of any discrepancy worked out on estimation as the accuracy of the accounts maintained by the assessee had not been doubted. Learned Accountant Member as well as the learned Third Member is fully justified holding that no addition can be made to the total income of the assessee on the basis of discrepancy worked out on estimation. Mr. Ray relied upon the judgment of Vijaya Traders v. CIT [1969] 74 ITR 279 (Mys) and submitted that the appeal filed by the appellant is liable to be dismissed. 5. Since both the questions involved in this appeal are linked with each other, instead of dealing with them independently it would be appropriate to deal with them combinely. 6. At this juncture, it is necessary to quote here some of the relevant portions Of the findings/observations of the learned Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court held the same view. The basic principle is the same in law relating to income-tax as well as in civil law, namely, that if there is no challenge to the transaction represented by the entries or to the genuineness of the entries, then it is not open to the other side-to contend that what is shown by the entries is not the real state of affairs ( CIT v. Amitbhai Gunvantbhai [1981] 129 ITR 573, at page 580 (Guj)). The ratio of the decision reported 200/788 is directly in the issue before us. When a return is furnished and the accounts are put in, in support of that return, the accounts should be taken as the basis for the assessment. They should not be rejected because they are complicated. The procedure of the Assessing Officer is of judicial nature and in making the assessment, the Assessing Officer should proceed on judicial principles. If the evidence is produced by the assessee in support of his return it should be accepted unless it is rebutted by other admissible evidence and not by mere hearsay or arbitrarily ( George Oommen v. Commr. of Agrl. I. T. [1964] 52 ITR 977 (Ker)). From the assessment order it is clear that the Assessing Officer has not mentioned any re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... weighment." Learned Third Member observed as follows ([2004] 269 ITR (AT) 20, 34) : Learned counsel for the assessee, Shri A. K. Roy, and learned counsel for the Department, the Commissioner of Income-tax, Shri E. M. Mohanty, were heard and their rival submissions were considered. It is an admitted fact that the stock was not weighed physically. It was partly physical and partly adopting sampling method. When a sampling method is adopted, some difference has to be there and cannot be 100 per cent. true account of the weighment. It may represent a discrepancy as observed by the Accountant Member at various places and as discussed in various paragraphs of his order or it may be a difference over or below what is recorded by the assessee. In view of stamping by the Steel Authority/RSP for the size and weight, there might not be much difference in valuation if it goes by weight inscribed therein but it has been taken as a sample in a cubic feet storage where scraps of different sizes were stored. That the difference is bound to be there, because sample always does not represent actual. It may be less or it may be more. Difference may be large if there is a large scale differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any defect in the accounts or omission and commission. 8. The Learned Judicial Member does not dispute that the valuation of the stock was made on estimation. In his order, he has held that there is no dispute that for valuation of about 3,000 MTs. iron scrap of small to very large sizes the best and proper method is the exact weighment using weighbridge, cranes and high tonnage dumpers. The same could not be weighed due to time constraint and the apprehension of disruption of normal factory work even closure for a long time. It was further held that some of the items were actually weighed and others were estimated with the assistance of the assessee's representatives at the factory premises. What the income-tax officials have done may not be wholly scientific, but the calculation cannot be ruled out as without any logic or statistical sampling. 9. The learned third Member taking into consideration the reasoning given by both members in their orders and applying the principle decided by this court rendered in Haribhagat Agarwalla's case [1982] 51 STC 355 (Orissa), held that no addition can be made on the basis of difference of stocks arrived at by applying sampling me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsuming, but the impact of making a guess time can be quite damaging in so far as the assessee is concerned. The assessee cannot be made to suffer the consequences of lethargy on the part of the officers of the Revenue. 13. The procedure of assessment is quasi-judicial in nature and in making the assessment the Assessing Officer must observe the judicial principles. Accounts regularly maintained in the course of business have to be relied upon unless there are strong and sufficient reasons to disbelieve them. Needless to say that discrepancy worked out on the basis of estimation of quantity and value of stock is not accurate, correct and scientific. Therefore, in the absence of any defect found out in the books of account, maintained in the regular course of business, no addition can be made to the income disclosed by the assessee in its return of income on the basis of discrepancy worked out on estimation of stock. 14. In view of the above, question No. 1 is answered in the affirmative and question No. 2 is answered in the negative. Hence, both the questions are answered in favour of the assessee and against the Revenue. 15. The appeal is disposed of accordingly. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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