No addition can be made to the total income of the assessee on the basis of discrepancy worked out on estimation, in absence of any defect found out in the books of account maintained in regular course of business.

JUDGMENT :

B.N. Mahapatra, J. - This Income Tax appeal has been preferred against the Order Dated 14.03.2002 passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack (hereinafter referred to as 'ITAT') in IT(SS)A No. 1/CTK/1996 for the block year 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 51 STC 355 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 UAL's, representative at the factory premises?

2. Bereft of unnecessary details, the facts and circumstances giving rise to the present appeal are that a search u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as 'the IT Act') was made in the factory and office premises of M/s Utkal Alloys Limited, Rourkela, Sundargarh (hereinafter referred to as 'UAL') on 2nd & 3rd November 1995. During the course of search, the search party did not find any incriminating material against the assessee-Respondent. However, discrepancy was alleged to have been found in stock of raw-materials and finished products during search. The assessing officer valued the excess stock at Rs. 30,880 and treated the same as undisclosed income of the assessee-Respondent for the assessment year 1996-97. The UAL filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the ITAT'). In appeal, two Learned members differed in their opinions about the correctness of the method of valuation adopted by the search party. According to Learned Accounts Member, no addition can be made to the income of the assessee on the basis of discrepancy worked out on estimation of stock. According to the Learned Judicial Member addition can be made to the total income of the assessee even if the discrepancy worked out on estimation of the stock. On difference of opinion between the two members, the matter was referred to the Learned President, ITAT for opinion of a Third Member u/s 255(4) of the IT Act. The Learned Third Member concurred with the view of the Learned Accounts Member and held that no addition can be made on the basis of discrepancy worked out on estimation. Hence, this appeal has been preferred at the instance of the Revenue.

3. Mr. A. Mohapatra, Learned Standing Counsel appearing for the Income tax strenuously argues that considering the voluminous stock it was not possible on the part of the search party to make weighment of the materials. On the consent of one Nathumal Agrawal, an employee of the assessee-Respondent the weight and value of the stock were estimated. Hence, the discrepancy worked out on the basis of such estimated value of stock has rightly been held to be the undisclosed income of the assessee-Respondent and added to its total income by the assessing officer. It is further argued that the decision of this Court in Haribhagat Agarwalla v. State of Orissa (1982) 51 STC 355 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 Accounts Member as well as the Learned Third Member is fully justified holding that no addition can be made to the total income of the a