TMI Blog1992 (2) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... ... in respect of expenses which were also not verifiable and which were deducted by the assessee in arriving at his returned income as above. The Assessing Officer, therefore, disallowed the same along with other amounts which, according to him, were disallowable. He, accordingly, computed the income from unaccounted business as follows: Rs. 11,28,863 ... Net profit as returned Rs. 5,696 ... Understatement of sales Rs. 43,35,715 ... Purchases for which payments had been made in cash disallowed Rs. 1,76,017 ... Expenses disallowed for want of verification including Rs. 1,60,428 as above ------------- Rs. 56,46,291 ... Total It can thus be seen that the Assessing Officer made the assessment on the basis of both the returned income of the assessee and the above amounts, which, according to him, were disallowable. The assessee had submitted before him that the unaccoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Supreme Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44. In this connection, he pointed out that the observation of the Assessing Officer in para 4 of his order where it has been stated that the assessee used to mix up recorded and unrecorded raw-materials in the process of manufacture and so it was not possible to clarify the stock position discrepancy. In fact, no day-to-day manufacturing and stock position details are maintained. He relied upon the Tribunal's decision in the case of M. Sreedhara Panicker v. ITO [1979] 7 TTJ (Cochin) 573 in support of the proposition that when an estimate is made, there was no scope for application of section 40A(3). On the other hand, the learned D.R. submitted that the application of section 40A(3) was mandatory and that this section was to be applied even if the proviso to section 145(1) was applied. He also submitted that the alternative claim based on application of rule 6DD(j) on specific payments made before the Tribunal should not be entertained at this stage because such a claim was not made before the Assessing Officer or the CIT (Appeals). In this connection, he pointed out from para 6 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mer, the Assessing Officer is empowered to compute the income upon such basis and in such manner as he may determine. So far as the latter is concerned, the Assessing Officer is empowered to make a best judgment assessment as provided in section 144, that is, after taking into account all relevant materials which he has gathered. Therefore, when the accounts are not correct or complete, it is not as if the Assessing Officer is compelled to ignore internal material which he has gathered and merely depend upon some external material to make an estimate. Further, section 145(1) is an enabling provision. It is intended to enable the Assessing Officer to make the correct assessment which is the paramount object. This has been clearly stated in the above quotation from the Supreme Court judgment in the case of British Paints India Ltd., relied upon by the assessee. It is not intended to confer any right or benefit upon an erring assessee. The burden of the Supreme Court judgment is that section 145 is intended to make the correct assessment in compliance with the law and not to by-pass the statutory provisions. Now regarding the second part of the submission, it is a fair proposition tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,37,906 Cotton seed oil ... Rs. 80,000 Empty tins ... Rs. 4,44,624 Coal purchases ... Rs. 92,335 Empty tins ... Rs. 1,72,065 ------------- Rs. 43,35,715 -------------- The assessee has disclosed profit from its unaccounted business in the return of income. In reply to question No. 1 in the statement of Shri B.A. Patel, Chairman of the Company, recorded under section 131 on 21-3-1989, he has clearly stated that there were certain transactions of sale and purchase of oil which were recorded in the diary Annex. D-66/A-36/M.B. Patel and Annex. A-28/K.V. Patel. The profit derived from such unaccounted business has been disclosed in the disclosure petition and, accordingly, the Income-tax returns for assessment years 1986-87 and 1987-88 have been revised'. From the above version of the Chairman of the Company, it is clear that the income disclosed in the revised return is represented by the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policy of law ? Secondly, if the deduction is permitted in such cases, it would put a person doing irregular business in a better or more advantageous position than a person who does business within the legal requirements. On this question, the revenue has relied upon the decision of the Gujarat High Court in the case of Hasanand Pinjomal in support of the contention that application of section 40A(3) is mandatory and more particularly on the decision of the Andhra Pradesh High Court in the case of S. Venkata Subba Rao. 9. Now although the application of this section is mandatory, it is not without exceptions that are found in the rule made under this section. The Andhra Pradesh High Court has dealt with this application in the above case. That was a case of a person dealing in smuggled goods and claimed immunity from application of this section on the ground that since the business was illegal, it was not possible to comply with that section. The High Court rejected the assessee's contention stating, "may be that in an illegal business, like smuggling, it may not be practicable to comply with the requirements of sub-section (3) of section 40A, but that only means that such ille ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be the intention of the law makers that illegal business should not be done, if the assessee finds it difficult to supply the proof of payment, it would not have been intended that business outside the books should not be done but that it should be recorded in the books. On the above reasoning, the decision of the Andhra Pradesh High Court is distinguishable. However, even if it is applicable, in the alternative if it is the intention of the law makers the income from that kind of business is to be taxed, then logically speaking, the law makers must be deemed to have taken into account the difficulty in obtaining proof regarding the expenditure. Therefore, while complying with the statutory requirements, we must so interpret the clause that reality of the situation is duly taken into account. Finally, if the State claims a share in any income, it cannot deny to the citizen the expenditure whereby the income is earned---CIT v. S. C. Kothari [1971] 82 ITR 794 (SC). Therefore, we are of the view that the assessee's case would be covered by the exceptions provided in rule 6DD(j). 10 to 18. [These paras are not reproduced here, as they involve minor issues]. - - TaxTMI - TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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