TMI Blog1971 (11) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... ACTG. C.J.-This is a reference by the Income-tax Appellate Tribunal, Bombay Bench "A", under section 66(1) of the Income-tax Act, 1922, at the instance of the applicant-assessee, Messrs. Naubatram Nandram of Bilaspur. The question referred to us for decision is: "Whether, on the facts and in the circumstances of the case, the amount of Rs. 79,000 or any part thereof was liable to be taxed as deemed profit under section 10(2A) of the Indian Income-tax Act, 1922?" The facts relevant for our purpose, as stalled in the statement of the case, may shortly be stated as under: The assessee is a Hindu undivided family. The assessment year is 1958-59, for which the account year is Samvat year 2014, Diwali 1956 to Diwali 1957. The assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales at Rs. 1,74,000 and profits at 20%. For the subsequent years also, namely, for the assessment years 1956-57 (Samvat 2012) and 1957-58 (Samvat 2013), the sales shown at Rs. 2,84,023 and Rs. 1,46,085, respectively, were not accepted nor the profits estimated on them at 18% and 12%, respectively. Again, under the proviso to section 13 of the Act, the department estimated the sales at Rs. 3,02,000 and profits at 20% for the assessment year 1956-57 and at Rs. 1,50,000 and 20% for the assessment year 1957-58. In the assessment year 1958-59 (Samvat 2014), the assessee obtained a remission from his lessor, the Raja of Dharamjaigarh, of Rs. 79,000 made up of the following items : Rs. 50,000 ... reduction in the lease consideration on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses had not been vouchered, and no stock taking had been done. He further held that had the correct amount of royalty been shown initially and all the facts relating to the forest disclosed, "the gross rate applicable would have been certainly much higher". As regards the item of Rs. 5,000, he held that the assessee had no evidence to show that the entry in respect of it was merely by way of reversal of a wrong entry made in 1953. The Appellate Assistant Commissioner, on appeal, upheld the taxability of the amount, inter alia, saying- "The trading account was rejected not because the amount of royalty amounting to Rs. 2,15,000 was unverifiable but because there was no check over the timber extracted from the forest nor was there any che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer and the profits with reference thereto estimated, it must be that the proportionate lease money was taken into account as an expenditure debitable to the trading account. That, according to us, is what actually happened." However, it held that the whole amount would not be taxable out only the proportionate amount out of Rs. 79,000 in the proportion of Rs. 2,45,000 to Rs. 2,15,000. Before we answer the question referred to us for decision, we may briefly examine the provisions of section 10(2A) of the Act. Section 10(2A) of the Act reads as under: "Where for the purpose of computing profits or gains under this section, an allowance or deduction has been made in the assessment for any year in respect of any loss, expenditure or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for any year because, unless it has been so made, the legal fiction will not operate between the assessee and the department. The sub-section is meant to fasten liability on the assessee who had been granted an allowance or a deduction. In other words, it creates a liability to tax only in cases where an allowance or deduction had in fact been granted earlier because the department then merely taxes as income what it had earlier allowed as deductions or allowances. In the instant case, the assessee had not maintained any profit and loss account in respect of the forest contract in question. As stated by the Appellate Assistant Commissioner in his remand report (annexure "D") which forms part of the case, the assessee had "merely debite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the computation of profits on percentage basis on sales there was never any occasion for the making of any allowance or deduction in the assessment for any year, much less that any such allowance or deduction had been made in the assessment of the assessee for any year in question. It is, however, contended that, though the lease money was not actually allowed or deducted in the assessment of the assessee in any of the years in question as trading expenditure or cost incurred, the lease money figured in the estimation of percentage of profits as one of the data and that consequently it (the lease money) should be taken to have been allowed as a deduction or allowance within the meaning of section 10(2A) of the Act. In our opinion, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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