1967 (1) TMI 8 - HC - Income Tax

Estimation of income by ITO - consideration of facts - it is not possible to say that the estimate of income was arbitrary or capricious to justify holding that some error of law had been committed by the Tribunal in confirming the flat rate of 5% applied by the departmental authorities.

Summary

Issues:
1. Application of flat rate of 5% compared to another dealer.
2. Splitting up turnover for different rates.

Analysis:
The case involved a Hindu undivided family assessed for the year 1950-51, dealing in Banarsi goods on commission and own account basis. The Income-tax Officer estimated sales at Rs. 2,50,000 applying a flat rate of 5% due to lack of proper accounts. The Appellate Assistant Commissioner upheld the assessment citing lack of transaction records. The Tribunal reduced turnover to Rs. 1,50,000 but retained the 5% flat rate. The assessee later referred to a comparable case before the Tribunal, but no mention was made during the hearing. The Tribunal found no reason to interfere with the 5% rate, considering the nature of sales and absence of turnover splitting. It was established that once a proviso to section 13 applies, the Income-tax Officer must fairly estimate income based on trade conditions and profit margins. The Tribunal's decision to confirm the 5% flat rate was deemed reasonable, not arbitrary. Estimating income through a flat rate is permissible if done judiciously, making it a factual, not legal, determination.

In conclusion, the questions raised were answered against the assessee, who was directed to pay the costs of the reference. The judgment emphasized the importance of fair income estimation by tax authorities based on trade conditions and profit margins, highlighting the validity of applying a flat rate if done reasonably.