TMI Blog1954 (10) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... t of those enquiries. - C.A. 217 OF 1953 - - - Dated:- 29-10-1954 - Judge(s) : GHULAM HASAN., MEHR CHAND MAHAJAN., N. H. BHAGWATI., S. R. DAS., T. L. VENKATARAMA AYYAR JUDGMENT The Judgment of the Court was delivered by MEHR CHAND MAHAJAN, C. J.--The appellant is a public limited joint stock company incorporated under the Indian Companies Act, 1913, with its registered office at Calcutta. It carries on the business of manufacture and sale of cotton yarn and piece-goods. On the 28th of July, 1944, the Income-tax Officer issued a notice to it under Section 22(2) of the Indian Income-tax Act calling upon it to file the return of its income for the assessment year 1944-45 (account year being 1943-44). Before, the expiry of the due date for filing the return the account books of the appellant company together with the documents relevant to the accounts, were taken into custody by the Sub-Divisional Officer, Narayanganj, and it is alleged that these remained in the custody of the Court of the Sub-Divisional Magistrate till January, 1950, when they were handed back to the appellant. In this situation the assessee pleaded for extension of time to furnish the return. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by this company is low. I conclude that full amount of sales have not been accounted for. It is expected that actually the rate of gross profit should have been higher this year. In view of the higher costs of establishment, I take it that the rate of about 40% i.e., near about the rate disclosed in 1942 accounts should have been maintained. I add back the Rs. 36 lakhs for unaccounted sales. " It may be mentioned that in the return the company had disclosed a gross profit of 28 per cent on sales amounting to Rs. 1,78,96,122. The total amount of sales in the year 1942 was of the amount of Rs. 1,15,69,592, disclosing a gross profits of 41 per cent. The establishment expenses, however, during that year were in the sum of Rs. 15,94,101, while during the accounting year relevant to the year under assessment these had gone up to Rs. 34,74,735 on account of labour troubles. A number of other causes were mentioned by the assessee for the low rate of profit during the relevant period ; but the Income-tax Officer took no notice of them. On appeal this order was upheld by the Appellate Assistant Commissioner. The assessee then appealed to the Tribunal against these decisions. What happe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of 34 per cent. was normal. In the case of the assessee he has shown a wastage of 9 per cent. in 1942, 26 per cent. in 1943 and 19 per cent. in 1944. The figure of 34 per cent. shown in that book would therefore seem to refer to a particular quality of cotton very much inferior to the cotton generally used by the appellant. The department's main case on the question of wastage is based on the appellant's own books according to which his wastage in the year under review amounted to three times the wastage in the year previous. In the light of all this information it appears to us that the Income-tax Officer was justified in making a substantial addition to the gross profits shown by the appellant. Coming to the question of what the amount of addition should be the departmental representative has on our request filed a number of cases of other cotton mills which show a gross profit rates varying between 49 per cent. and 22 per cent. and in one case even 13 per cent. has been shown............ In the face of all the above facts it appears to us that the Income-tax Officer was justified in coming to the conclusion that all sales had not been brought into the books. We have, how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tsoever and that the evidence tendered by the appellant had been improperly rejected. It was further said that the Tribunal acted without jurisdiction in relying on the data supplied by the Income-tax Department behind the back of the appellant company, and without giving it an opportunity to rebut or explain the same. Reliance was placed on the decision of a Full Bench of the Lahore High Court in Seth Gurumukh Singh v. Commissioner of Income-tax, Punjab, for the proposition that while proceeding under sub-section (3) of Section 23, the Income-tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in fairness disclose to the assessee the material on which he is going to find that estimate ; and that in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilized to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and that he should further give him ample opportunity to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and that the only restriction on his judgment is that he must act honestly on the material however inadequate before him, but not capriciously or arbitrarily It was suggested that owing to the disparity of the rate of wastage the Income-tax Officer was entitled to reach the conclusion that the assessee had not disclosed the full sales made by him during the accounting year, and that on that basis he was entitled on his own information to make an estimate of the rate of gross profit. As regards the first contention of the learned Solicitor-General, we are unable to accede to it. It is not possible to define with any precision the limitations on the exercise of the discretionary jurisdiction vested in this Court by the constitutional provision made in Article 136. The limitations, whatever they be, are implicit in the nature and character of the power itself. It being an exceptional and overriding power, naturally it has to be exercised sparingly and with caution and only in special and extraordinary situations. Beyond that it is not possible to fetter the exercise of this power by any set formula or rule. All that can be said is that the Constitution having trusted the wisdom a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not had a fairhearing. The estimate of the gross rate of profit on sales, both by the Income-tax Officer and the Tribunal, seems to be based on surmises, suspicions and conjectures. It is somewhat surprising that the Tribunal took from the representative of the department a statement of gross profit rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that that statement had no relevancy whatsoever to the case of the mill in question. It is not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere, and whether these mills were similarly situated and circumstanced. Not only did the Tribunal not show the information given by the representative of the department to the appellant, but it refused even to look at the trunk load of books and papers which Mr. Banerjee produced before the Accountant Member in his chamber. No harm would have been done if after notice to the department the trunk had been opened and some time devoted to see what it contained. The assessment in this case and in the connected appeal ; we are told, was above the figure of Rs. 55 lakhs and it was meet and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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