1968 (10) TMI 41 - HC - Income Tax

Whether the Tribunal was justified in applying the proviso to section 13 of the Indian Income-tax Act, 1922 - accounts are regularly maintained and they have been accepted in respect of three out of the four commodities in which the assessee deals - fact that the purchases of arecanut are supported only by the assessee s bought notes is no ground for the application of the proviso to section 13 of the 1922 Act, or the proviso to section 145 of the 1961 Act

Summary

Issues:
- Application of proviso to section 13 of the Indian Income-tax Act, 1922
- Application of proviso to section 145 of the Income-tax Act, 1961
- Justification for rejecting the accounts in respect of arecanut business
- Validity of the findings of the Appellate Tribunal

Analysis:
The judgment pertains to two references made by the Madras Bench of the Income-tax Appellate Tribunal concerning the same assessee for the assessment years 1961-62 and 1962-63. The primary issue in both cases revolves around the application of specific provisos to the Income-tax Acts of 1922 and 1961. In the first case, the question was whether the Tribunal was justified in applying the proviso to section 13 of the 1922 Act, while in the second case, it was about the proviso to section 145 of the 1961 Act. The assessee, a private limited company engaged in hill produce business, faced challenges with the assessment of its income related to arecanut trade in both years.

For the assessment year 1961-62, the Income-tax Officer rejected the assessee's accounts concerning arecanut, estimating the gross profit at 4.5% of the turnover and adding a substantial amount to the income. Similarly, for the subsequent year 1962-63, the Officer again disputed the accounts for arecanut, significantly inflating the gross profit and total income figures. The Appellate Assistant Commissioner upheld the rejections, citing the respective provisos to the Acts. The Appellate Tribunal concurred, emphasizing the lack of verifiable purchase details as a key reason for invoking the provisions.

However, the High Court scrutinized the Tribunal's reasoning and found it lacking in substance. The Court highlighted that the mere absence of seller vouchers due to the nature of the business did not warrant rejecting the accounts. Notably, the accounts were regularly maintained and accepted for other commodities, indicating a consistent business practice. The Court emphasized that the absence of external vouchers for arecanut purchases did not inherently render the accounts unreliable or justify the application of the provisos.

The Court addressed the revenue's argument that the Tribunal's decision was factual and not subject to review unless unsupported by evidence. However, the Court asserted that if a finding is based on irrelevant grounds or lacks material support, it becomes a legal question open to judicial scrutiny. In this instance, the rejection of accounts based solely on the absence of external vouchers was deemed unjustified, leading the Court to rule in favor of the assessee. The judgment concluded by answering the questions in the negative, favoring the assessee, and directing the Tribunal accordingly, with no costs imposed.