ORDER
R. K. Gupta, J.M.
1. These are three appeals filed by the Department and assessee. Department’s appeals are relating to asst. yrs. 1984-85 and 1985-86 and assessee’s appeal is relating to asst. yr. 1986-87. We will take first Department’s appeals.
2. In both the appeals the similar issue is involved which is against the deletion on account of trading addition representing value of excessive wastage claimed by the assessee.
3. The CIT(A) vide its order dt. 20th September, 1991, decided the issue for both the years in a consolidated order. Additions of Rs. 21,57,800 and Rs. 3,20,000 for asst. yrs. 1984-85 and 1985-86, respectively was made by the AO.
4. The assessee-company derived income from manufacturing of cotton yarn, cotton textiles and hosiery textiles and sale thereof. In the asst. yr. 1984-85 the assessee consumed raw cotton weighing 24,74,777 kg. and obtained production of yarn therefrom at 19,86,096 kg. as compared to the production of yam at 22,61,804 kg. from the raw cotton consumed at 28,05,718 kg. in the preceding assessment year. The assessee, therefore, claimed process loss of raw cotton to the extent of 4,88,681 kg. in the current year as against last year’s process loss of 5,43,514 kg. which gives the percentage of 19.74 per cent and 19.37 per cent respectively. Similarly, the assessee had shown production of cloth at 7.97 mtrs. on consumption of 1 kg. of yarn during the current year as against last year’s production of 7.66 mtrs. on consumption of 1 kg. of yarn. The AO found that the assessee had shown higher process loss on consumption of raw cotton during the current year as compared to last year. He further found from the details obtained for the years 1979 to 1984 that the invisible wastage increased from 6.57 per cent to 9.64 per cent. It was claimed before the AO that the Tribunal has accepted invisible loss to the extent of 10.7 per cent and 10.9 per cent in the years 1960-61 and 1961-62. The AO was not satisfied with the reply. Discussing in detail the AO came to the conclusion that assessee has shown excessive wastage and in last he made an addition of 21,57,900 for asst. yr. 1984-85 and an addition of Rs. 3.20,000 for asst. yr. 1985-86 as the facts were similar to the preceding year.
5. The detailed submissions were made before the CIT(A). It was stated that the assessee is maintaining regular books of accounts. The assessee’s product is subject to excise duty and there was a very strict vigils by the excise deptt. From time to time the account books were test checked by the excise deptt. and the signature were put in the books of account. It was further stated that no defect of any kind was pointed out by the AO in books of account. Therefore, there was no justification in rejecting the books result of the assessee. It was further stated that the assessee is a company which started sometime in 1957 or so and no addition on this account was made ever. Reliance was placed on R. B. Banshilal Abirchand Spinning Wvg. Mills vs. CIT (1970) 75 ITR 260 (SC), Jhandu Mal Tara Chand Rice Mills vs. CIT (1969) 73 ITR 192 (P&H), Dhakeshwari Cotton Mills Ltd. vs. CIT (1955) 27 ITR 126 (SC) and M. D. Umer vs. CIT (1975) 101 ITR 525 (Pat). After considering the submissions of the learned Departmental Representative and the material, the CIT(A) deleted the additions in both the years.
6. We have heard the rival submissions and considered them carefully. We have also perused the material placed here before us. The learned authorised representative has repeated the submissions as made before the CIT(A) and has further placed reliance on various decisions, copies of the same are placed on record. The CIT(A) in operating para which started from p. 7 has observed as under :
“I have considered the facts and submissions made. I find that the assessee-company has been maintaining regular books of accounts and the same are supported by purchase and sale vouchers. The assessee has also maintained quantitative details of consumption of raw cotton, production of yarn, production of cloth, etc. as required by the Central excise Department. Such quantitative records are subjected to inspection by the Excise authorities from time to time and they have never disputed the production of yarn as well as cloth as recorded in the books of accounts. Moreover, the AO also has not pointed out any defect or discrepancy in the books of accounts so maintained. There is also no material evidence to show suppression of sales or inflation of expenses. Keeping these facts in view, there is no case for rejection of book results by applying proviso to s. 145(1). The AO has also not given any finding for application of proviso to s. 145(1). He has rather made additions by taking the production of yarn at a higher rate but he has not given any justification for rejecting the yam production at 80.25 per cent shown. I further find that during the current year the assessee has shown invisible waste at 2.02 per cent and the AO has almost accepted such invisible waste shown.
Further, the assessee has shown hard waste at 10.11 per cent and blow dust at 7.58 per cent. Hard waste as well as blow dust has been sold and the sale of hard waste as well as blow dust is supported by sale vouchers. If the sale of hard waste and blow dust is considered, there could be no excess yarn manufacturing as that would lead to the total production in excess of 100 per cent which is impracticable. There is also no material evidence on record to suggest that the assessee in fact sold cotton yarn whereas the bills were issued either of hard waste or blow dust. Moreover, I also find that the yield of yam as well as waste has been varying from year to year depending upon the quality of raw cotton used and the production results cannot be the same as in earlier years on account of various factors as the history of the case shows. It would also be seen that the invisible waste has been accepted in the asst. yr. 1960-61 and 1961-62 at over 10 per cent whereas in the years under consideration it is much lower. Further, for detailed reasons given by the learned counsel, the case of the assessee cannot be fully comparable with that of M/s Rajasthan Co-operative Spinning Mill. Considering all the facts and circumstances discussed, I hold that the accounts maintained being supported by purchase and sale vouchers and day-to-day quantitative records are correct and complete and there having been pointed out no defect or discrepancy, proviso to s. 145(1) is not applicable. The AO has not accepted the production of yam as well as production of cloth as shown in the books of accounts but there being no defects pointed out, the AO was not justified in rejecting the production account of yarn as well as cloth. The trading additions made for both the asst. yr. 1984-85 and 1985-86 are, therefore, not held justified and the same are hereby deleted.”
After looking to the observations of the CIT(A) and finding of CIT(A), we do not see any infirmity in the order of the CIT(A). The CIT(A) has given its finding after considering all the facts of the case and also of the legal propositions. The AO nowhere has invoked the provisions of s. 145(1) and if provisions are not invoked then the estimate of profit is not possible in the eyes of law. No defect of any kind was pointed out by the AO.
6.1. In case of R. B. Banshilal Abirchand Spinning & Weaving Mills vs. CIT (supra) at 282 the Bombay High Court has observed that :
“The officer’s right under the proviso to s. 13 arises only after a finding is recorded as to the unacceptability of the method and irregularity of the accounts kept. In the absence of such a finding recorded by the authorities, the book results cannot be ignored or brushed aside. The mere fact that the percentage of dead loss of cotton is high in a particular year cannot lead to an inference that thereby there has been a suppression of the production in a spinning mill.
On the above observations, the Hon’ble High Court has allowed the appeal of the assessee.
6.2. In case of CIT vs. Maharaja Shree Umaid Mills Ltd. (1991) 192 ITR 565 (Raj), the Hon’ble Rajasthan High Court has held that the Tribunal was justified in holding that since books of accounts had not been rejected, the mere fact that there had been a fall in the g.p. rate would not lead to the inference that the expenditure had been inflated.
6.3. In case of CIT vs. Padamchand Ram Gopal (1970) 76 ITR 719 (SC), the Hon’ble Supreme Court has held that no addition is justified if the books of accounts are not rejected.
6.4. We have also seen the other case law relied upon by the learned authorised representative and we find that the book results cannot be ignored if the books of accounts are not rejected or any defect were not pointed out by the AO. Therefore, we do not see any infirmity in the order of the CIT(A). On the reasons given by CIT(A) and on the reasons given here by us, the order of the CIT(A) is confirmed here by us.
7. Now we will take the appeal of the assessee relating to asst. yr. 1986-87. There are two grounds in the appeal of the assessee. Ground No. 1 relates to rejection of assessee’s claim for carry forward of loss to the successive years. Ground No. 2 is against the disallowance of Rs. 2,050 out of telephone expenses.
7.1. At the time of hearing, the learned authorised representative did not press ground No. 2. Therefore, the same is rejected accordingly.
7.2. Ground No. 1 is against the disallowance of claim of assessee for carry forward of loss to the successive years. The assessee filed return of its income late. The AO determined the loss at Rs. 72,94,968 but the same was not allowed to be carried forward since the return filed on 16th December, 1986, was late as per s. 80 of the IT Act.
7.3. Before the CIT(A) it was submitted by the counsel that assessee-company is one of the sick units and the Government took over the same in January, 1985 when there was no proper staff and no one to look after the work of the mill. Therefore, there were extraneous circumstances for the delayed return for which Form No. VI was also filed. In view of these circumstances, the return having been once considered and assessments having been made under s. 143(3), the loss determined should have been allowed to be carried forward. The CIT(A) by observing that the assessee was required to file the return on or before 30th June, 1986, which was filed by the assessee on 16th December, 1986, admittedly was belated. It was further observed that the return was not filed within the time available under s. 139(1). Therefore, the claim is not allowable.
7.4. Now the assessee is in appeal here before us. The authorised representative of the assessee made detailed submissions and placed reliance on various case law.
7.5. On the other hand, the learned Departmental Representative relied upon the order of the authorities below.
7.6. After hearing the rival submissions and considering the material on record, we find that the submissions of the learned authorised representative carry weight because the return was filed within the extended period. The assessee moved an application on Form No. VI and requested for extension of time for filing the return. The assessee filed the return within the time sought for extension for filing of return. Therefore, the return should be treated as filed in time. This Bench of the Tribunal has taken a view in an earlier case that if the return is filed within the time extended then the return be treated as filed in time. In this case also the return was filed within the extended period. There is no dispute regarding the filing of return within the extended period. Therefore, we are of the view that the claim of the assessee is allowable.
7.7. In case of CIT vs. Kulu Valley Transport Co. (P) Ltd. (1970) 77 ITR 518 (SC), the Hon’ble Supreme Court has held that “under the provisions of s. 22(3) (analogous to s. 139(4) of IT Act, 1961, is a proviso to s. 22(1) (analogous to s. 139(1) and the return filed under s. 22(3) is also a return filed under s. 22(1) and therefore the unabsorbed business losses should be allowed to be carried forward”.
The decision of the apex Court is still a good law. Therefore, the ratio of the decision is very much applicable to the facts of the present case.
7.8. The amendment in s. 80 by the Direct Tax Laws, (Amendment) Act, 1987, whereby the above words have been replaced by the words “under s. 139(3)” have been effective for and from asst. yr. 1989-90. Therefore, the amendment is also not have any effect on the facts of the case of the assessee because the case of the assessee pertains to asst. yr. 1986-87. In view of the facts and circumstances, we allow the appeal of the assessee and the AO is directed to allow claim of carry forward loss to the succeeding year.
8. In the result, appeals of the Department are dismissed and appeal of the assessee is allowed in part.