TMI Blog1967 (5) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... hers were sold in pieces. For the accounting year ending with March 31, 1953, there was an overall turnover of Rs. 69,06,153. The account books of the assessee disclosed a gross profit of Rs. 4,40,499 on the above turnover. On calculation, the gross profit rate came up to 6.3% as against the overall gross profit rate of 8.5% appearing from the books of the assessee for the immediately preceding year. Called upon by the Income-tax Officer to explain the reason for the lower rate of gross profit for the assessment year, the assessee submitted a written statement therein explaining the reason in the following language : " During the year of account sale of scrap comes to Rs. 42,17,130-9-6 out of the total gross sales of Rs. 69,06,153-9-6. In the scrap dealing the rate of gross profit is generally very low. If the scrap sales are deducted from the trading account, rate of gross profit earned in disposal of goods comes to 13.1%. On account of heavy sales in scrap there is a fall in the overall rate of gross profit." This explanation was not considered to be satisfactory by the Income-tax Officer. The Income-tax Officer found fault with the manner in which stock books and accounts we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sales of machines, trucks, tyres, motor parts, etc. These sales amount to Rs. 29,39,651 and disclose a gross profit of Rs. 3,68,775 or a little over 12% on the turnover. In the comparable case cited by the Income-tax Officer a profit of 17% was disclosed. So far as these commodities were concerned, they were also purchased and sold locally by that party and not exported. In respect of the sale of these goods, therefore, there appears to be little reason for such a low profit. I, however, find one fact in this case, which indicates that the profit of the appellant may be slightly lower than that in the comparable one which has itself purchased these goods from the appellant and then sold it in the market. The margin of profit of the appellant, therefore, in the case of the appellant, must necessarily be lower than the margin of profit of that party. Notes of the Income-tax Officer indicate that in some cases that lower profits were accepted. I will, therefore, estimate the sales of the appellant at Rs. 30,60,000 and estimate the gross profit at 16%. This will raise the gross profit to Rs. 4,89,600 as against Rs. 3,60,775 shown by the appellant. This will result in an addition of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustained by the Appellate Assistant Commissioner was, therefore, on the high side. Having regard to the fact that the purchases and sales were all vouched, that the sales included a large proportion of sales in lots, that the commodities sold were, of such a varied nature that the same margin of profit could not be expected from year to year, we feel that in addition of Rs. 65,000 to the profit shown in the disposal goods in place of Rs. 1,28,825 would cover the leakages that exist. " Aggrieved by the order of the Tribunal, the assessee at first fried for a reference of the question of law, stated above, before the Tribunal. Therein failing, he succeeded in getting an order from this court calling for a statement of the case on the question of law stated above. Mr. S. K. Achariya, learned counsel for the assessee, argued a very short point for our consideration. He did not contend that the books of the assessee should not have been rejected. He did not also contend that in the facts and circumstances of the case, the proviso to section 13 would not be attracted. The point urged by him was that, in exercising the power under the proviso to section 13, the revenue authorities m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the Tribunal referred' to the rates of profit, earned by the assessee in subsequent years, namely, the years 1955-56 to 1958-59, does not amply appear. Further, the Tribunal accepted the theory that, whenever the proportion of sales in lots was higher, the gross profit rate was lower. In the instant case, the Tribunal proceeded on the basis that sales in lots amounted to Rs. 2,47,688, the gross purchase price, Rs. 2,40,622, and the margin of profit in respect of such sales amounted to only 3%. The Tribunal was satisfied that the effect of such sales in lots was to reduce the overall margin of profit in sale of disposal goods. Thus the line of reasoning adopted by the Tribunal does not justify the off-hand addition of Rs. 65,000 to the profit in disposal goods on the abrupt theory that such addition would cover leakages that existed. This is particularly so, because the Tribunal came to the conclusion that purchases and sales were all vouched. We are not, therefore, satisfied that the addition of Rs. 65,000 to the gross profit was made by the Tribunal in judicial exercise of discretion under the proviso to section 13. Mr. Achariya contended that if we were not satisfied with th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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