TMI Blog1989 (9) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000. The details of the difference of Rs.1,40,000 are as under : ---------------------------------------------------------------------------------------------- Dt. of Name of party No. of Original Revised figure Inflation entry in pieces tanned figure after erasure the books ---------------------------------------------------------------------------------------------- Rs. Rs. Rs 26-4-78 Syed Jaffar Khan, 1,000 23,000 43,000 20,000 Dharmapuri 12-7-78 Shaik Haroon, 1,641 38,153 68,153 30,000 Jolarpet 3-8-78 Majjed Ahmed, Ambur 1,000 24,000 44,000 20,000 20-7-78 Farooq Ahmed, Jolarpet 1,154 25,103 55,103 30,000 16-8-78 Hyder Ali, Gudiatham 600 16,100 26,100 10,000 26-8-78 Ibadullah, Cuttack 800 15,504 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside of the original assessment by the order of the C.I.T(A) dt. 23-5-83. 5. The assessee is a firm of four partners. The I.T.O. has set out the background which we have already adverted to and thereafter he considered the aspect of inflation of purchases amounting to Rs. 1,40,000. He again made an addition of Rs. 1,40,000 in the assessment now under consideration observing as under :--- " The erasures and corrections in the figures were not denied, but it was stated that the value shown in the bills related to the purchase from these parties in the earlier year were wrongly entered by the accountant in the day book due to oversight and when the mistake was found out on verification, the corrections were made. When the representative was asked as to whether he could produce the bills and the relevant books relating to the earlier year, he readily agreed to do so. But later a letter dated 18-2-86 was sent by the assessee stating that the bills and books of accounts relating to the earlier year had become rot due to dampness and white ants had spoiled the complete set of books of account. Later, at the time of visit by this office Inspector, partner Shri K. M. Noorullah had exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68,000 2. M. Sultan, Jolarpet 6-10-78 ------ 15,168 3. Syed Jaffar Khan, Dharmapuri 11-5-78 20,000 4. Farooq Ahmed, Jolarpet 25-7-78 23,096 5-1-79 50,000 22-1-79 4,671 21-3-79 20,086 97,853 5. Majeed Ahmad, Ambur 16-8-78 ------ 24,000 6. Hyder Ali, Gudiyatham 23-8-78 14,100 7. Ibadullah, Cuttack 11-8-78 10,000 ------ Total 2,49,121 -------------------------------------------------------------------------------------------- From this the I.T.O. substracted Rs. 30,000 which related to the squared-up account of Sheik Haroon, and arrived at the balance of Rs. 2,19,121. He did not accept the plea that the assessee's case fell outside the purview of sec. 40A(3) in view of the fact that it came under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made Rs. 1,97,247) 1981-82 11,92,058 8.0 G.P. accepted 50,590 1982-83 11,54,074 5.2 G.P.accepted 47,420 1983-84 14,56,188 6.0 G.P.accepted 38,000 1984-85 17,57,950 5.0 G.P. accepted 71,804 1985-86 9,95,446 8.0 G.P. accepted 23,859 -------------------------------------------------------------------------------------------------------------------------------------------------- His submission was that the book results had been accepted in all the years except the assessment year now under consideration and the assessment year 1980-81 and that the highest gross profit was only about 9.6%. According to the learned counsel, even assuming that there were defects in the accounts, an assessment should have been made to the best of the judgment and when the turnover had not been interfered with, viz., the sales had not been disputed, arriving at a gross profit rate of 25% on the basis of additions made, invoking the provisions of sec. 40A(3), etc. were not warranted. He also sought to urge that the provisions of sec.40A(3) itself would not be applicable because the assessee was purchasing hides and skins, etc., and the purchases made were from shandies or from parties, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from whom he has purchased goods. ---- Specific discount is given by seller for payment to be made by way of cash." The objective of section 40A(3) is to ensure that the payments are genuine. We have stated this to highlight the fact that originally when the appeal was decided on the first occasion, the CIT(A) had occasion to observe that enquiries had shown that M/s Universal Trading Co., M/s Mudasser Leather Co., and M/s. Harris Faiz Co. were not genuine parties and the purchases from these parties may be fictitious. Obviously, the subsequent elaborate enquiries made showed that these parties were genuine and at least in the case of M/s Universal Trading Co., even a sales tax order has been produced. Also no addition has been made on the score that the purchases from these parties were fictitious or the amounts borrowed from these parties were fictitious. There is, therefore, no reason to suspect that payments aggregating to Rs. 70,857 to these three parties were not genuine. So also in respect of payments aggregating to Rs. 2,19,121 it is stated admittedly that the purchases were from Shandies, commission agents, etc., and, in our view, there is nothing to doubt the genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in accordance with the method of accounting regularly employed by the assessee : Provided that in any case where the accounts are correct and complete to the satisfaction of the Income-tax Officer but the method employed is such that, in the opinion of the Income-tax Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine. (2) 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 Income-tax Officer may make an assessment in the manner provided in section 144." In the Full Bench decision of the Madras High Court in the case of P. S. Subramaniam Chettiar Sons v. Joint CTO [1966] 18 STC 357, it has been stated at page 362 as under : " Broadly speaking, in the taxation laws of this country, be it income-tax or sales-tax, assessment by best judgment as a distinct category of power has come into practice and wherever the Legislature thought fit, it expressly conferred that power upon the Assessing Authority." (Emphasis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would result in the emerging of an amount which would have a relevance or relation to what could be the true income. The Income-tax Act contains many instances where alternative methods of assessment for computation have been provided for. Example, in the case of an Association of Persons, the I.T.O. could exercise the option to assess either the members of the association individually or the association itself [see CIT v. Murlidhar Jhawar Purna Ginning Pressing Factory [1966] 60 ITR 95(SC). In the case of M.M. Ipoh v. CIT [1968] 67 ITR 106 (SC), the discretion given to the I.T.O. to bring, to tax either the income of the association collectively or the shares of the members of the association separately, was challenged as offending Article 14 of the Constitution of India. In the course of the judgment Shah, J. speaking for the Supreme Court, observed at pages 112 and 113 as under :--- " Section 3 of the Income-tax Act does not, it is true, expressly lay down any policy for the guidance of the Income-tax Officer in selecting the association or the members individually as entities in bringing to tax the income earned by the association. Guidance may still be gathered fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legitimately due to the State, constitute, in our judgment, adequate enunciation of principles and policy for the guidance of the Income-tax Officer". (Emphasis supplied) 13. The question had arisen in another case whether action should have been taken u/s 34 of the 1922 Act or u/s 35 of that Act, and in the case of Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547, the Madras High Court observed at page 565 as under :--- " The real question is not whether section 34 and section 35 are mutually exclusive in their operation, but whether in a given case, the statutory requirements are satisfied. If in a given case the requirements of both section 34 and section 35 are satisfied, the Income-tax Officer can have recourse to either. That in such a case there is overlapping will not bar recourse to either section at the choice of the assessing authority." (Emphasis supplied) 14. In the case of State Bank of Travancore v. CIT [1986] 158 ITR 102/24 Taxman 337 (SC), Sabyasachi Mukharji, J. with whom Ranganath Misra, J. concurred, has formulated in the course of the judgment certain propositions relating to the concept of real income and adoption of the same for assessment pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as might indicate that scales are weighted against the assessee. We are wholly unable to subscribe to the view that unless those authorities exercise the power in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed not to have exercised it in a proper and judicious manner." 17. In the present case, therefore, where the accounts clearly are not correct and complete, the provisions of sec.145(2) are attracted. The Act clearly provides in such cases that the I.T.O. may make an assessment in the manner provided u/s 144, i.e., to the best of his judgment. In coming to this conclusion that this is the more preferable method to be followed in this case, we have not read the Act so as to defeat any provisions thereof, and in our view, we have given due regard to the concept of real income and applied it with care and within the well-recognised limits, which does not defeat any fundamental principle of law of income-tax as developed, as enjoined by the Supreme Court in the case of State Bank of Travancore. Merely because a best judgment assessment is made, it does not mean that any relevant material in the books of account should be ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
