1966 (2) TMI 15 - HC - Income Tax

Rejction of accout books of assessee - addition as estimated profits from suppressed transactions is not justifiable in law

Summary

Issues Involved:
1. Justification for the addition of Rs. 51,000 as estimated profits from suppressed transactions.
2. Validity of the rejection of the assessee's account books.
3. Adequacy of the evidence or material supporting the estimate of Rs. 51,000.

Issue-wise Detailed Analysis:

1. Justification for the Addition of Rs. 51,000 as Estimated Profits from Suppressed Transactions:
The central question for consideration was whether the addition of Rs. 51,000 as estimated profits from suppressed transactions was justifiable in law. The Appellate Tribunal's finding that the assessee's business did not commence from October 12, 1948, as shown by the books of account, was final. The Tribunal also found that several transactions up to October 12, 1948, were not recorded in the assessee's account books. Despite the Tribunal accepting the explanation for Rs. 51,000 as a gift from the father, they did not interfere with the addition made by the Income-tax Officer. The Tribunal observed that the department had not detected all suppressed transactions and that there were many more transactions before October 12, 1948. The court concluded that the addition of Rs. 51,000 was not justifiable in law, as the figure was based partly on irrelevant material, which was the explanation for Rs. 51,000 being satisfactory.

2. Validity of the Rejection of the Assessee's Account Books:
The rejection of the assessee's account books was upheld by the Appellate Tribunal, which found that the books did not represent the entire period of the assessee's business and several transactions were not incorporated. The Tribunal's findings were categorical and binding, making it impermissible to challenge the reasons for the rejection of the account books. The court noted that the rejection of the account books was justified based on the findings that the business commenced much earlier than October 12, 1948, and that there were unexplained cash credits and transactions.

3. Adequacy of the Evidence or Material Supporting the Estimate of Rs. 51,000:
The court examined whether the estimate of Rs. 51,000 was based on adequate material or evidence. The Income-tax Officer had given reasons for rejecting the account books, including unexplained capital introductions totaling Rs. 71,000 and unrecorded transactions. The Appellate Tribunal found that about 206 bales despatched in July 1948 were not recorded in the accounts. The court referred to the Supreme Court's ruling in Raghubar Mandal Harihar Mandal v. State of Bihar, which emphasized that an estimate must be related to some evidence or material and not be based on mere suspicion. The court found that while there were materials for rejecting the accounts, the estimate of Rs. 51,000 was partly based on irrelevant material, making it unsustainable. The proper course would have been to reconsider the estimate based on relevant materials only.

Conclusion:
The court concluded that the addition of Rs. 51,000 as estimated profit from suppressed transactions was not justifiable in law. The Tribunal's retention of the original estimate figure, despite finding part of the material irrelevant, was incorrect. The reference was disposed of with no order for costs.