TMI Blog1996 (3) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative, Sri K. Harilal Naick. Their arguments are taken into consideration. 3. The appellant is carrying on the business as a dealer in purchasing black pepper, ginger, tea dust, etc., and selling them to the exporters. He has declared the gross profit at 0.58 per cent of the total turnover of the business done by him. The total turnover is of Rs. 1,72,00,000 and the gross profit declared by the assessee is Rs. 1,01,766. The Income-tax Officer considered that the gross profit declared by the appellant is of a low rate. According to him in the identical business, the gross profit is being declared at one per cent to 1.5 per cent. Therefore, the Assessing Officer estimated the gross profit on the turnover of the business done by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the book results because of having found certain defects or discrepancies and, therefore, he wanted to apply the provisions of section 145(2) of the Income-tax Act, 1961, to estimate the gross profit. He did not doubt the turnover of the dealings of black pepper. When he has accepted the turnover of black pepper and did not find out any defects or discrepancies in the account books, in that event, in the ordinary course, it was not just and proper to estimate the gross profit at a higher rate. In accordance with section 145(2) of the Act, where the Income-tax Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of either the proviso to section 13 of the 1922 Act or the proviso to section 145 of the 1961 Act". Their Lordships further held that "if the finding of the Appellate Tribunal cannot be sustained on any material, or if the facts stated in support of its finding have no relevancy to the conclusion of the Tribunal, it raises a question of law and the High Court is entitled to examine whether the said finding can be sustained". In the instant case, also there is a regular feature in this line of business to take bought out notes. 8. The learned representative has also relied on another judgment of the jurisdictional High Court in the case of M. Durai Raj v. CIT [1972] 83 ITR 484 (Ker.), wherein it had been held that "that the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er valid nor relevant in rejecting the accounts of the assessee. 9. Some evidence is required to be adduced to say that bought out notes of the assessee are genuine and cannot be verified. Without such supporting evidence, the Assessing Officer's observations cannot be considered as sufficient. 10. After considering the facts, arguments and the case laws in this respect, without rejecting the books of account for any good reasons, the estimation of the gross profit cannot be considered as correct. The learned departmental representative tried to justify the estimation on the ground that the estimation of gross profit at a rate of 0.58 per cent is very low and, therefore, the Assessing Officer's estimation at one per cent is quite reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention, he has relied on the judgment of the Allahabad High Court in the case of CIT v. Chaudhary Co. [ 1996] 217 ITR 431 wherein their Lordships held that the "object of section 40A(3) of the Income-tax Act, 1961, is that a fictitious amount should not be claimed as revenue expenditure. The intention of section 40A(3) was not that cash payment can never be allowed as a deduction. The terms of section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahabad High Court in the case of Chaudhary Co. held that "the Tribunal had found that the seller had been insisting on cash payment. The identity of the seller had been disclosed by the assessee. The assessee had furnished the certificates from the sellers stating that they had insisted on cash payment and as to the genuineness of the payments. Hence, the Tribunal was justified in holding that the payments in question were not bit by section 40A(3) and in deleting the addition". 14. The learned departmental representative has relied on the decision of Gauhati High Court in the case of Associated Engg. Enterprise v. CIT [1995] 216 ITR 366 in support of his contention that because the assessee made a cash payment and, therefore, they are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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