1977 (9) TMI 16 - HC - Income Tax

Account Books, Business Income, Income Returned, Income Tax Act, Previous Year, Rejection Of Accounts, Transport Business

Summary

Issues Involved:
1. Whether there was material before the Tribunal to come to a finding that the assessee's account books do not disclose his true profits.
2. Whether the Tribunal was justified in estimating the earnings of the assessee from transport business by adding Rs. 50,000 to the receipts shown by the assessee.

Issue-wise Detailed Analysis:

1. Material Before the Tribunal to Determine True Profits:
The Income-tax Officer (ITO) did not accept the receipts shown by the assessee from the transport business, citing that the figure was low compared to previous years and the mileage covered. The ITO observed that the receipts were unverifiable due to the absence of counterfoils for the tickets issued and discrepancies in the daily collection sheets. Consequently, the ITO applied the proviso to section 13 of the Indian Income-tax Act, 1922, and added Rs. 1,00,000 to the receipts shown by the assessee. The Appellate Assistant Commissioner upheld this addition, but the Appellate Tribunal reduced it to Rs. 50,000.

The court noted that the assessee's counsel contended that the ITO and Tribunal did not provide a clear finding that the true income could not be deduced from the accounts, which is necessary for applying the proviso to section 13. The counsel argued that the non-maintenance of counterfoils was not significant enough to reject the accounts, especially since the daily collection sheets were accepted in previous and subsequent years. Additionally, the accounts were audited, and the fall in receipts was attributed to reasonable causes.

The department's counsel argued that the ITO had given a clear finding that the true income could not be deduced from the accounts, justifying the application of the proviso to section 13. The court agreed, noting that the questions referred themselves presuppose a finding that the accounts did not disclose true profits. The court emphasized that it could not go into the facts to determine if the conclusions by the income-tax authorities were justified, as it was not exercising appellate jurisdiction.

The court examined various precedents cited by the assessee's counsel, including Commissioner of Income-tax v. Padamchand Ramgopal, Commissioner of Income-tax v. S. P. Jain, Motipur Sugar Factory (P.) Ltd. v. Commissioner of Income-tax, and Md. Umer v. Commissioner of Income-tax. These cases highlighted that insignificant mistakes or non-production of certain documents alone cannot justify rejecting accounts. However, the court found that in the present case, the ITO had material reasons to conclude that the true position of profits could not be deduced from the accounts, justifying the application of the proviso to section 13.

2. Justification for Estimating Earnings:
The second issue concerned whether the Tribunal was justified in estimating the assessee's earnings by adding Rs. 50,000 to the receipts shown. The ITO had calculated the optimal receipts based on mileage covered and average seating capacity, allowing a ten per cent margin for possible eventualities, and initially added Rs. 1,00,000 to the receipts. The Tribunal later reduced this addition to Rs. 50,000.

The court noted that the ITO applied a rational principle based on previous years' data and gave credit for possible eventualities before arriving at the figure of Rs. 1,00,000, which the Tribunal further reduced to Rs. 50,000. The court found that the estimation was not arbitrary and was based on a rational method. The court referred to Harakchand Radhakisan v. Commissioner of Income-tax, where it was observed that conjecture alone cannot justify such additions. However, in the present case, the ITO's calculation was based on reasonable assumptions and previous data, making the addition of Rs. 50,000 justified.

Conclusion:
The court answered both questions in the affirmative, affirming that there was material before the Tribunal to find that the assessee's account books did not disclose true profits and that the Tribunal was justified in estimating the earnings by adding Rs. 50,000 to the receipts shown by the assessee. The court directed the parties to bear their own costs.