1950 (8) TMI 18 - HC - Income Tax

Summary

Issues:
1. Application of proviso to Section 13 in assessing gross profits.
2. Legality of assessment under Section 23(3) based on profits of neighbouring shopkeepers.

Analysis:

Issue 1: Application of proviso to Section 13
The petitioner, a yarn dealer, was assessed to income tax at 12? per cent gross profits, despite declaring 7? per cent profit in his accounts. The Income-tax Officer rejected the petitioner's accounts due to mixed accounting, cash sales to unnamed persons, and lower profits compared to neighbouring shopkeepers. The Tribunal, in a subsequent order, indicated the application of proviso to Section 13, leading to a writ of mandamus for clarification. The Court deliberated on conflicting judicial views regarding the proviso's scope. The majority view supported its application even if the Income-tax Officer doubts certain account entries. However, the minority view suggested otherwise, emphasizing the officer's power under Section 23(3) for assessments based on credible information beyond submitted accounts.

Issue 2: Legality of assessment under Section 23(3)
The Court considered the legality of assessing the petitioner under Section 23(3) based on neighbouring shopkeepers' profits. It highlighted that the Income-tax Officer can utilize additional information apart from submitted accounts, ensuring natural justice by allowing the assessee to rebut inferences drawn. The petitioner alleged lack of opportunity to challenge the shopkeepers' profits used in assessment. However, records revealed that the petitioner had explained the lower profits by citing purchases from local dealers, which was considered but ultimately rejected by lower courts. The Court concluded that the petitioner had the chance to counter the inferences drawn from the shopkeepers' profits, negating claims of prejudice due to undisclosed information.

In the final judgment, the Court reserved its opinion on the proviso to Section 13's application and affirmed the legality of the assessment under Section 23(3) based on neighbouring shopkeepers' profits. The reference was disposed of, with the petitioner directed to pay costs. The Chief Justice concurred with the decision, and the reference was answered accordingly.