9911796707
TMI Blog1961 (12) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... as wholesaled basis. For the period under reference, the assessee's books disclosed a turnover of ₹ 2.58, 3.16 and 3.78 lakhs on which the gross profit return was 7.8, 5.6 and 4.5 per cent. respectively. The Income-tax Officer did not accept the gross profits returned and for the various defects discovered in the method employed by the assessee as shown in his order, he was of the opinion that the true income and profits cannot be deducted from the account books. He, therefore, invoked the proviso to section 13 and after considering the assessee's reasons for the low rate of gross profits, estimated the gross profits for the three years in question at 12, 10 and 10 per cent. respectively. The Appellate Assistant Commissioner reduced the gross profit rates to 10, 8.5 and 8.5 per cent. respectively after a careful consideration of comparable cases and also the reasons given by the parties. When the matter came before the Appellate Tribunal, there was a difference of opinion between the Judicial Member and the Accountant Member. While the former held that the application of the proviso to section 13 was not justified, the Accountant Member held otherwise and confirmed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly to the question whether the true income, profits and gains can be properly deduced therefrom. The Income-tax Officer in his order has, for the various defects shown by him, come to a definite conclusion that the true extent of gross profits cannot be properly deducted from the accounts maintained. The material on which he came to that conclusion is: (1) that the assessee claims to be both a wholesale and a retail dealer but has maintained one combined trading account in respect of both kinds of sale, notwithstanding that the extent of profits in each case is admittedly different from the other; (2) that the purchases and sales though vouched, the vouchers did not give full details and did not state the quantity of the goods sold; (3) that there are instances where the same medicine was sold, on the same day, at deferent rates, but the assessee did not give explanation for these variations in the sale rates and the lack of information as the identity of the purchasers, etc., rendered it impossible to ascertain the veracity of the entries; and (4) that there was no stock register maintained and the stocks were adjusted in the account on what is known as inventory basis and these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e could enable the Income-tax Officer to deduce properly the income and profits. There was, therefore, no occasion for the officer to resort to the proviso. It must be remembered that the assessee is at liberty to adopt any method of bookkeeping. The method employed by him may be one of the well-known or recognised methods in the commercial world or may be a mixture of two or more methods. So long as he regularly adopts one single method and the method so employed enables the Income-tax Officer to deduce the profits, income and gains properly, the income-tax authorities, in the absence of vitiating circumstances, are bound by his accounts, But if, on the other hand, the account books are deficient or defective as a result of which the Income-tax Officer cannot arrive at the true extent of profits, even after considering every single material that is produced before him, his resort to the proviso cannot be open to question. In the present case, as we have already pointed out, the Income-tax Officer had considered all the materials and found that the manner in which the accounts were maintained was so defective and the information was so deficient, that it was not possible for him to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to lend support to the conclusion reached. Then their Lordships considered the other objections raised in relation to sufficiency of grounds for rejection of accounts. It was submitted before their Lordships that the non-production of the stock account was not such a defect as to entitle the taxing authorities to reject the books and apply the proviso to section 13 and, for this contention, reliance was placed on Pandit Bros. v. Commissioner of Income-tax [1954] 26 I.T.R. 159. Their Lordships observed that the circumstances of that case were entirely different. Therein, the want of a stock register was not a very serious defect, for the accounts as maintained were found to be correct and disclosed the trust state of affairs. They further observed that there was also a further reason and it was that the Income-tax Officer had resorted to the proviso without giving the finding that the true profits cannot be properly deduced from the account books. Their Lordships, in the course of the judgment, referred to the decision of the Nagpur High Court in Ghanshyamdas Permanand v. Commissioner of Income-tax [1952] 21 I.T.R. 79 ; A.I.R. 1952 Nag. 24, which was to the effect that the mainten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on no evidence nor can it be assailed on any question of law so that it may be subjected to the advisory jurisdiction of the High Court. That apart, the defects shown are obviously very material. The deficient method employed cannot possibly enable the authorities to assess the true rate of profits. The Appellate Tribunal by its majority had rightly held that, in the facts and circumstances of the case, it was legitimate for the Income-tax Officer to resort to the proviso. It is argued that at the time when the income-tax authorities had rejected the book results and proceeded to make an estimate they did not give a reasonable opportunity to the assessee to explain the circumstances including comparable cases which were taken into consideration. This procedure, it is urged, is opposed to the principle laid down in the two unreported decisions of this court in Siddamsetti Ramanandam v. Commissioner of Income-tax Judgment in R.C. No. 38/1957 dated 5-3-1959 (unreported) and Koduri Butchirajalingam Oil Mills, Warrangal v. Commissioner of Income-tax, Judgment in R.C. No. 39/1959 dated 1-2-1961 (unreported). But this point, if true, does not seem to have been taken at any stage of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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