1961 (1) TMI 69 - HC - Income Tax

Summary

Issues Involved:
1. Rejection of Books of Account.
2. Application of Proviso to Section 13 of the Indian Income-tax Act.
3. Justification for Additions to Disclosed Gross Profits.

Detailed Analysis:

1. Rejection of Books of Account:
The core issue was whether the rejection of the books of account by the Income-tax Officer (ITO) was justified. The ITO found discrepancies in the assessee's bought notes, such as alterations in dates and names, which suggested the existence of another record of prime entry. The ITO concluded that the bought notes could not be relied upon as evidence of purchases. The Appellate Assistant Commissioner (AAC) and the Tribunal upheld this view, citing the absence of independent vouchers and a variety-wise stock tally as defects in the assessee's accounting system.

However, the High Court noted that in a similar case for the 1949-50 assessment year, the Tribunal had accepted the bought notes as valid evidence. The High Court observed that neither the AAC nor the Tribunal found any entry in the account books to be untrue, and there was no finding that the purchases were inflated or the sales were suppressed. The High Court emphasized that the mere fact that the gross profits were low was not sufficient ground to reject the books of account.

2. Application of Proviso to Section 13 of the Indian Income-tax Act:
The proviso to Section 13 allows the ITO to determine the income of an assessee if the method of accounting is such that the true profits cannot be deduced. The Tribunal applied this proviso, stating that the absence of a variety-wise stock tally justified its application. However, the High Court found that the Tribunal did not clearly specify what additional particulars were required. The High Court pointed out that the assessee had provided quantitative stock particulars in annexures "A" and "B," which were not rejected by the Tribunal. The High Court concluded that the absence of a variety-wise stock tally was not a sufficient basis for applying the proviso to Section 13.

3. Justification for Additions to Disclosed Gross Profits:
The ITO made additions to the disclosed gross profits for the assessment years 1951-52 and 1952-53, citing that the gross profits compared unfavorably with those of other dealers. The Tribunal upheld these additions, reducing the addition for 1951-52 to Rs. 5,000 and confirming the addition of Rs. 10,000 for 1952-53. The High Court noted that the real basis for sustaining the additions was the comparison of the assessee's gross profits with those of others, which was not a sufficient ground for rejecting the books of account. The High Court emphasized that low gross profits alone do not justify the rejection of the system of accounts or the application of the proviso to Section 13.

Conclusion:
The High Court concluded that the rejection of the books of account and the application of the proviso to Section 13 were not justified. The Court emphasized that the mere fact that the gross profits were low was not sufficient to reject the books of account or apply the proviso to Section 13. The question was answered in the negative, in favor of the assessee, and the assessee was entitled to the costs of the reference.