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TMI Blog1994 (1) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order as follows :---- (1) Sri V.N. Prabhakaran Rs. 1,55,650 (2) Sri M. Baburaj Rs. 85,550 (3) Sri P.V. Ramakrishna Panicker Rs. 45,000 (4) Sri C.K. Sreedharan Rs. 90,000 (5) Sri N. Janardhanan Rs. 45,000 (6) Sri B. Shajishah Rs. 60,000 (7) Sri B. Sreekumar Rs. 60.000 (8) Smt. P.K. Vasumathy Amma Rs. 60,000 (9) Sri Bhavani Rajappan Rs. 60,000 (10) Sri M.P. Sukumara Panicker Rs. 60,000 ------------------------------- Rs. 7,21,200 ------------------------------- In addition to the above, loans were shown against the following partners as follows : (1) Sri B. Sreekumar Rs. 10,000 on 24-5-1989 (2) Sri B. Shajishah Rs. 10,000 " (3) Sri V.N. Prabhakaran Rs. 50,000 on 28-11-1989 (4) S.K. Sreedharan Rs. 10,000 on 24-5-1989 There was also difference in cash book on various dates to the extent of Rs. 2,18,850 as noticed in Annexure B to the assessment order. The assessee was asked to explain the credits amounting in all to Rs. 10,20,050 consisting of credits in the partners' current accounts amounting to Rs. 7,21,200, loan accounts of the partners in a sum of Rs. 80,000 and difference in cash book balances of Rs. 2,18,850. The assessee was unable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of that business only. In cases where the assessee maintained consolidated accounts for arrack business as well as for other business, then the Income-tax Officer is empowered to look into the accounts to apportion the income as between the two businesses in terms of section 44AC(3). Such is not the case with the assessee. Hence, after applying the provisions of section 44AC, to make further additions, that too, on the basis of the books maintained for the arrack business, would be to exceed the mandate of section 44AC. Assuming that the Income-tax Officer had such powers to look into the accounts of arrack business, notwithstanding the provisions of section 44AC, Sri Nair contended that the credits were recorded in the books of accounts maintained for arrack business. For toddy business no books were maintained. There was no other source of income for the assessee and the department has not pointed out any such source. Therefore, the credits found in the books relating to the arrack business must be deemed to be the business income, but because of the presumption created under section 44AC, there cannot be any further addition to the income from arrack business. As the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mode, conducted by any other person or his agent (hereinafter in this section referred to as the seller),---- (a) any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor), a sum equal to forty per cent of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head 'Profits and gains of business or profession' : Provided that nothing contained in this clause shall apply to a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act; (2) (3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportion as the turnover of such other business bears to the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of arrack. Except for the purchase of arrack, payment of kist and P.F. and E.P.F. contributions and tax payments, no other expenditure is supported by external evidence. Majority of payments are recorded only in self-made vouchers with minimum details. No day-to-day stock register has been kept. These defects are common in this line of business and the assessment of arrack-vendors usually proceed on the basis of estimation of profit and we take judicial notice of the same, as we have noticed the presence of such defects and practice in the assessment of arrack vendors which have come before us. Thus, in the absence of section 44AC, the Income-tax Officer would be entitled to reject the books of accounts and resort to an estimate of income, but in view of the provisions of section 44AC, the same result is achieved by resorting to a presumptive rate of profit. Therefore, we hold that once the provisions of section 44AC are invoked, no fresh additions or disallowances can be made for arriving at the profit from arrack business. Sri Abraham points out that the Income-tax Officer has accepted the presumptive rate of profit as worked out by the assessee. The addition made by the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which these credits and difference in cash balances were noticed. It is reasonable to presume that the impugned amounts related to the arrack business of the assessee. It is reasonable to hold thus because this is not the first year of the assessee's business, but it is the second year of its business. It is reasonable to hold thus because the credits are not in one lump sum, but are found credited in the accounts of the partners on different dates in varying amounts. It is reasonable to hold thus because the difference in cash balances was not found on any one date, but was spread over a number of dates. It is reasonable to hold thus on the premises that the earlier mentioned defects and deficiencies that are commonly noticed in account books of arrack business provide the conduit for siphoning off the income generated in the business. In other words, they could constitute the source of funds which are later ploughed back into the business in the guise of credits in partners' accounts and loan accounts and carry-forward of different cash balances. This we say because in the absence of sale bills, sale price per litre of arrack is anybody's guess. In the absence of day-to-day s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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