1951 (6) TMI 14 - HC - Income Tax

Summary

Issues:
1. Competency of the Tribunal to compute income under the proviso to Section 13 of the Indian Income-tax Act, 1922.
2. Justification of the add back of Rs. 30,000 based on the material on record.

Analysis:

Issue 1:
The case involved a dispute regarding the competency of the Tribunal to compute the income of the assessee under the proviso to Section 13 of the Act. The Tribunal had increased the add back amount from Rs. 2,000 to Rs. 30,000 based on the absence of a stock account maintained by the assessee. The Tribunal concluded that the assessee's method of accounting was faulty due to the lack of a stock account, leading to an incorrect computation of income. The counsel for the assessee argued that the Tribunal exceeded its jurisdiction by computing income under the proviso to Section 13. However, the court held that the Tribunal's power to decide facts and law under Section 33(4) of the Act allowed it to substitute its assessment order for the one under appeal. The court referred to a precedent to support this interpretation. The court further explained that Rule 12 of the Appellate Tribunal Rules, 1946, permitted the Tribunal to consider additional grounds not set forth in the memorandum of appeal, as long as the affected party had a sufficient opportunity to be heard on those grounds. As the assessee had the chance to present arguments on the additional ground, the court dismissed the argument challenging the Tribunal's competency.

Issue 2:
The second issue revolved around the justification of the add back of Rs. 30,000 by the Tribunal. The Tribunal based its decision on the absence of a stock account maintained by the assessee, which hindered the verification of sales and expenses related to furniture production. The Tribunal noted that in businesses like the one operated by the assessee, maintaining a stock account was crucial. It highlighted that the margin of profit in good quality furniture was typically higher than what was disclosed in the books of account. This discrepancy, combined with the lack of a stock account, led the Tribunal to conclude that the Income-tax Officer should have rejected the assessee's books of account and made an estimate under the proviso to Section 13. The court found that the reasoning provided by the Tribunal constituted sufficient material justifying the add back of Rs. 30,000. The Department initially claimed an add back of Rs. 40,000, but the Tribunal reduced it to Rs. 30,000 after considering the arguments. As no other points were raised during the proceedings, the court upheld the Tribunal's decision on the add back amount.

In conclusion, the court dismissed the application, affirming the Tribunal's competency to compute income under the proviso to Section 13 and finding justification for the add back of Rs. 30,000 based on the material presented during the proceedings.