TMI Blog1974 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting years. For the assessment year 1964-65, the assessee corporation had shown a gross loss of Rs. 24,000 on the sales of fish of Rs. 6,11,120. For the assessment year 1965-66, it had returned a gross profit of Rs. 3,915 on sale of fish of Rs. 3,82,338. For both the years in question, the assessee was admittedly keeping accounts according to the mercantile system. The assessee was making purchases of fish locally from places like Balugan and Berhampur in Orissa. Besides, it was purchasing fish from Hyderabad in Andhra Pradesh. It has mainly two centres of sale, one at Cuttack and the other at Bhubaneswar. The learned Income-tax Officer on examination of the accounts produced by the assessee noticed that the sale of fish out of purchases made from Hyderabad were invariably entailing loss because of alleged shrinkage, shortage and wastage in transit. He, therefore, held : (1) that though the assessee was aware of this loss over purchases of fish from Hyderabad from first few transactions, yet it continued running the business at a loss all the year through, and (2) that it did not maintain proper accounts of stock of fish received and sold at different centres. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int referred to above. Although the facts are quite simple and so too the controversy, yet on behalf of the assessee and the revenue as well, elaborate arguments were advanced with several citations. But we consider it otiose to advert to all of them. The contentions of Mr. Rath, the learned counsel for the assessee-petitioner, are that : (i) The petitioner being a State Government sponsored corporation and incorporated under the Indian Companies Act, 1956, with the sole object of carrying on business in purchasing and selling fish at a fair price so as not to allow the local market price to go up easily, should not have been viewed as an ordinary assessee whose sole purpose is to make gain and earn a profit to itself. (ii) The assessee being a Government sponsored concern was subjected to internal audit and being a company under the Companies Act, had its statutory audits also, which were furnished along with the returns to the Income-tax Officer who was not justified in rejecting the books of account which stood the test of prior audits. (iii) It is none of the business of the revenue to advise the assessee to have stopped purchasing fish from Hyderabad when from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the same in the books of account or to produce the municipal receipts in support of the same. (iv) All the courts of fact right up to the Tribunal were anxious that the assessee should produce facts and figures in support of its assertion, but the assessee evidently failed to do so as is crystal clear from the following observation of the Tribunal : " Even before us the assessee could not produce stock books or municipal certificate although the assessee's counsel was very much boisterous as to the maintenance of perfect accounts. Merely because the stock registers were maintained by the assessee, it cannot be taken as valid and conclusive evidence for acceptance of books regarding the defects noted by the Income-tax Officer. Non-maintenance of details of loss in transit or inability to render faithful account of shortage or driage or shrinkage of fish weight in transit, indeed, are valid and conclusive evidence for throw. ing the book profit. Now coming to the reasonableness of the rate of 15% the revenue has given cogent reasons for adoption of the same and, therefore, we do not also find any reason to reduce the same." Relying on this finding of the Tribunal, the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n inadmissible evidence and misread the evidence and based its conclusion on conjectures and surmises, the court could ignore the findings of the Tribunal and re-examine the issues arising for decision on the basis of the material on record. (ii) That, on the facts, the only reasonable inference that could be drawn from the circumstances was that the Rana was a mere name-lender and that the income-tax authorities were fully justified in drawing an inference that the Rana was a name-lender for the assessee. The High Court and the Supreme Court have always the jurisdiction to interfere with the findings of the Appellate Tribunal if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language is a matter of law, or it has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination and imports facts and circumstances not apparent from the record or bases its conclusions on mere conjectures or surmises or where no person judicially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary grounds for rejection of books of account. The next argument advanced that the assessee is a Government sponsored institution, that its board of directors consists of employees of the State Government, that the directors continue to hold the office of the member of the board of the corporation on being nominated by the Government of Orissa, that the entire share capital of the petitioner-corporation is held by the State Government of Orissa and that the State Government extend loan facilities to the petitioner-corporation from time to time or that the avowed purpose for which the corporation was created was for developing and rearing fish to keep the price level of fish at a reasonable rate are utterly irrelevant considerations to influence the judgment of the taxing authorities. Once the assessee has indulged in business, it has to keep its accounts in a proper manner as any other concern or businessman is expected to do. No assessee should gloat under the impression that he or it is entitled to any preferential treatment at the hands of the revenue and if it did, it is surely disillusioned. Even concerns entirely run by Government harbour the impression that as a wing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is year there were outside purchase, I take G.P. @ 20% on sale of Rs. 6,11,120 ...... .. (underlining is ours). Two things emerge out of this assessment order. Firstly, the learned assessing officer found that no proper account for the stock of fish received and sold at different centres was maintained and, secondly, in the absence of stock account, the shortage could not be worked out. The flat rate of 5% shortage, in the absence of municipal certificate, which admittedly were not obtained regularly, was unacceptable and that in view of the gross profit in a subsequent year in respect of one item of sale at 35%, he took the gross profit at 20% of the sale. We find no infirmity in this assessment order nor anything substantial has been pointed out to us to treat it as pepper corn. Further, it prima facie demolishes the main argument advanced for the assessee that it does not deal with different kinds of fish from the observation " in respect of one item of sale at 35% ". Besides, it is repugnant to all common sense that from different ponds in Orissa, from Balugan as well as distant place like Hyderabad, it is the same variety of fish of every description and irrespective of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading or a private party. Once any person indulged in trade and the fiscal law became applicable to them, sequel examination and process to determine the true and fair profit follows. Now, coming to the defects noted by the Income-tax Officer, the Appellate Assistant Commissioner has accepted the factum of maintenance of stock register but failed to record any finding as to the obtaining of irregular certificate from the municipality. The departmental representative has also referred to us the finding of the Income-tax Officer about the estimate of shortage of 5% regardless of actual shortage in transit or in storage. The estimate at uniform rate may be based on experience but fails to answer the description for acceptance of the book result. Even before us the assesses could not produce stock books or municipal certificate, although the assessee's counsel was very much boisterous as to the maintenance of perfect accounts. Merely because the stock registers were maintained by the assessee, it cannot be taken as valid and conclusive evidence for acceptance of book results regardless of the defects noted by the Income-tax Officer. Non-maintenance of details of loss in transit or ina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the revenue, there was no scope for any arbitrary enhancement is fallacious. It is exactly to meet such contingencies that the proviso to section 145 of the Act has been enacted. It lays down that in any case where the accounts are correct and complete but the method employed is such that the income, profits and gains cannot properly be deduced therefrom, the Income-tax Officer is bound under this proviso to compute the income upon a basis and in a manner determined by himself. Even if the assessee has regularly employed a well-recognised method of accounting, e.g., the life or last-in-first-out method or the " lease stock-system ", the Income-tax Officer must still discard it and act under the proviso if the method does not show correctly the profits of the year. The only limitation is that after rightly discarding the assessee's method of accounting, the Income-tax Officer should not himself adopt a wrong or improper method of computation. From the foregoing discussions it would follow that we have been satisfied that the orders of the Tribunal suffers from no inherent infirmity justifying interference. In the result, therefore, we would answer the reference in the affi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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