INCOME TAX ACT, 1961

Section 145(3)

Accounting method - Rejection - Alleged suppression of production by assessee in clay production - AO not referred the matter to domain experts in the field of mining such as geologists and mining engineers.

Assessee owned three mines was engaged in the business of mining of clay. AO invoked section 145(3) and rejected assessee's books alleging suppression of production by assessee. AO proceeded ahead on the basis of his own investigation and understanding of mining process involved, and on the basis of his own calculation and understanding of variables worked out quantum of clay which could be extracted from one of the mines owned by assessee. Assessee contended that as far as determination of qunatum of clay which could be extracted/produced from mines was concerned, it was clearly a complex and technical matter involving understanding of topogrophy of the area where mines are located, the methodology and process of extraction /production involved, the machinery and labour employed as well as various environment and related requlatory matters. Held: An ITO cannot carry arrogate to himself the power to determine quantity of production, or to utter a final word on intricacies of manufacturing process, that too, without referring to any reliable material. AO, in the instant case, was totally unsuited for undertaking the activity of determining exact production of material, which itself involved very complicated procedures.' Further, on the basis of such calculation, AO had determined shortfall or suppression in clay production vis-a-vis production disclosed by assessee in respect of one of the mines. Further, using the same percentage of suppressed production, he had proceeded ahead and worked out proportionate suppression of production in other two mines without getting into specific of functioning of such mines which again could not be accepted. There was no material on record and no finding recorded by AO that quantum of clay so determined by him as part of suppressed production had been actually dispatched and sold and more so, when assessee's activities came under the jurisdiction of State Mining Department and both its production and dispatches were closely montioned by the Mining Department. Royalty assessments were carried out by Mining Department without any adverse findings and copy of royalty assessment orders, copy of monthly returns, details of production at mines and dispatches from the mines and reconciliation thereof were admittedly furnished before AO. Accordingly, there was no basis for alleging suppression of production by assessee and that too when AO had not referred the matter to domain experts in the field of mining such as geologists and mining engineers.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

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