1959 (2) TMI 27 - HC - Income Tax

Summary

Issues:
1. Justification of addition of a specific amount in income tax assessment.
2. Correct computation of gross profit and additions made by the income tax authorities.
3. Application of the proviso to section 13 of the Income-tax Act in estimating income.
4. Rejection of books by the Tribunal and assessment based on a flat rate of gross profit.

Detailed Analysis:
1. The case involved the question of whether the Income-tax Appellate Tribunal was justified in sustaining the addition of a specific amount in the income tax assessment of the assessee firm. The Tribunal had added various sums to the net income disclosed by the assessee, leading to a total addition of Rs. 1,37,189. The Tribunal criticized the basis of the additions and expressed the view that the proviso to section 13 of the Act should be applied when the book version of profits could not be accepted.

2. The Tribunal computed the gross profit at 9.5% instead of the 5.1% disclosed by the assessee's books. The Tribunal made additions on account of the value of the yield of oil and cake from unaccounted-for kernel, the deficit yield of oil and cake from kernel disclosed in the books, and unaccounted-for profit on the sale of permits. However, the Tribunal made an arithmetical error in the computation, as the total additions would enhance the profit to Rs. 1,72,522, not Rs. 1,37,189 as initially calculated.

3. The Tribunal's application of the proviso to section 13 of the Act was crucial in estimating the income of the assessee. The Tribunal rejected the books of the assessee and emphasized the need to make a unitary addition when estimating income. The Tribunal's computation was based on an estimate of 9.5% gross profit, which was considered appropriate under the circumstances.

4. The Tribunal rejected the basis of the assessee's books and adopted a flat rate of 9.5% to compute gross profits. The Tribunal also disregarded the unexplained cash credits added by the income tax authorities, as the books were rejected. The Tribunal's decision to confirm the additions made by the income tax authorities was based on the estimation of gross profit at 9.5%, and not on the specific items added by the authorities.

In conclusion, the High Court held that the Tribunal's computation based on a gross profit rate of 9.5% was proper, and the amount of Rs. 1,37,189 was wrongly calculated due to an arithmetical error. The Court answered the reference in the negative, ruling in favor of the assessee and directing the Department to bear the costs.