9911796707
TMI Blog1989 (9) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the I.T.O. by oversight took at Rs.1,30,000. The details of the difference of Rs.1,40,000 are as under : ---------------------------------------------------------------------------------------------- Dt. of Name of party No. of Original Revised figure Inflation entry in pieces tanned figure after erasure the books ---------------------------------------------------------------------------------------------- Rs. Rs. Rs 26-4-78 Syed Jaffar Khan, 1,000 23,000 43,000 20,000 Dharmapuri 12-7-78 Shaik Haroon, 1,641 38,153 68,153 30,000 Jolarpet 3-8-78 Majjed Ahmed, Ambur 1,000 24,000 44,000 20,000 20-7-78 Farooq Ahmed, Jolarpet 1,154 25,103 55,103 30,000 16-8-78 Hyder Ali, Gudiatham 600 16,100 26,100 10,000 26-8-78 Ibadullah, Cuttack 800 15,504 35,504 20,000 8-9-78 M. Sultan, Jolarpet 632 17,808 27,808 10,000 ---------- Total 1,40,000 ---------- ---------------------------------------------------------------------------------------------- It was also seen that the assessee had borrowed amounts totalling to Rs.1,00,000 from M/s Universal Trading Co., M/s Harris Faiz & Co., and M/s Mudasser Leather Co. 3. The I.T.O. also made a separate additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were made. When the representative was asked as to whether he could produce the bills and the relevant books relating to the earlier year, he readily agreed to do so. But later a letter dated 18-2-86 was sent by the assessee stating that the bills and books of accounts relating to the earlier year had become rot due to dampness and white ants had spoiled the complete set of books of account. Later, at the time of visit by this office Inspector, partner Shri K. M. Noorullah had explained that the room of the building in E. K. Guru Street, Madras-3, in which the books were kept collapsed due to uprooting of a margosa tree adjacent to the compound wall during the floods. If it were so, it is not clear how the representative agreed to produce the bills and account books relating to the earlier year. In the light of the admitted fact that the entries had been erased and corrected in the books and in the absence of production of any evidence, the explanation that the corrections were made to set right mistake committed by the accountant due to oversight remains unproved. If the explanation was true the assessee should have tried to get at the sellers and obtain carbon copies of the bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the I.T.O., the purchases were from commission agents and the shandy purchases did not contain the names of any of the purchasers excepting Farooq Ahmed. 6. The I.T.O. also went into the question of cash payments made to M/s Universal Trading Co., M/s Mudassar Leather Co., and M/s Harris Faizas & Co. In respect of M/s Universal Trading Co., the I.T.O. by applying the provisions of sec. 40A(3) disallowed Rs. 4,840, in respect of M/s Mudassar Leather Co. by applying the same provisions disallowed Rs. 56,781 and in the case of M/s Harris Faizas & Co., by applying the same provisions, added back Rs. 9,236, or in the aggregate Rs. 70,857 in respect of these three parties. 7. The I.T.O. also made a disallowance of Rs.45,000 on account of provision for sales-tax stating that the provision appeared to be arbitrary. The assessee appealed and the only relief the C.I.T.(A) directed in his order was that the I.T.O. would allow deduction of the actual sales-tax liability out of the provision made of Rs.45,000. 8. The assessee is in appeal before us and the submission of the learned counsel was that the aggregate of the additions made by the I.T.O. (Rs.1,40,000 + Rs.2,19,121 + Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITO had made specific additions and these additions should not have been interfered with. The mere fact that by disallowing a portion of the purchases u/s 40A(3), which resulted in large additions, he submitted, would not be a justification for reducing the quantum when the assessee was clearly hit by the provisions of the aforesaid section. In support of the stand he submitted that the sales-tax assessment order of M/s Universal Trading Co. showed that they were purchasing tanned skins and it was not a case where they were tanning skins, which the assessee had purchased in which case the provisions of rule 6DD would apply. According to the learned departmental representative, therefore, the assessment required to be upheld. 10. We have considered the rival submissions. There are exceptions under rule 6DD which state that no disallowance should be made in respect of certain types of payments. If the present purchases are of tanned skins from the persons who are tanning skins, then exemption would have been applicable under rule 6DD(f). The submission of the learned departmental representative was with reference to one of the orders of the sales-tax department, i.e. M/s Universa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve already set out the reasons which weighed with the ITO in making the addition of Rs. 1,40,000 towards inflation in purchases. There were clear erasures and corrections and overwritings whereby the difference of Rs. 1,40,000 occurred. This is what the ITO could detect on scrutiny of the accounts. There is the following interesting observation in the commentary by Chaturvedi & Pithisaria on Income-tax Law (Vol.3 -Third Edition) at page 2904 : ---- " Whether unreliable accounts can be rejected while making an assessment under section 143(3) :---- Under the 1922 Act, there was a conflict of judicial opinion on the point whether the Income-tax Officer, in making a 23(3) assessment, could reject ungenuine or incorrect accounts and invoke the proviso to section 13. The Calcutta, Nagpur, Allahabad, Rangoon and Lahore High Courts laid down that the Income-tax Officer could have recourse to the proviso even in such cases (see, Seth Gurmukh Singh v. CIT [1944] 12 ITR 393, 416 (Lah.) ; Ganga Ram Balmokand v. CIT [1937] 5 ITR 464 (Lah.) ; Navadwipchandra Nagendra Das, In re [1939] 7 ITR 488 (Cal.), Shamrao B. Deshmukh v. CIT [1939] 7 ITR 515 (Nag.) ; Eknath Bellappa Lingyat Wani v. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment assessment (see section 145(2)] where he is not satisfied about the correctness or completeness of the accounts of the assessee. It has also been stated by the aforesaid provision that such an assessment is to be made in the manner provided u/s 144, i.e., all relevant material which the I.T.O. had gathered is to be taken into account and the total income is to be computed to the best of his judgment. The Madras High Court in the case referred to has spelt out the manner of best judgment assessment further as under :---- " As case for best judgment arises at the initial stage of assessment either where no return is filed or where a return is filed, it is incomplete or incorrect. In such a case, it will not be expected that accounts or other materials will be forthcoming on which assessment can be directly based. The Assessing Authority who is charged with the duty of assessing the quantum of turnover will have, therefore, to determine the turnover to the best of his judgment. Best judgment, however, does not mean that the Assessing Authority can base the quantum determined by him on no material at all. If there is some material either in the form of direct evidence or circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed, regard must be had to the scheme of the Act. Under the Act of 1922, the Income-tax Officer is required to issue a general notice calling upon all persons whose total income during the previous year exceeds the minimum nor chargeable, to tax to submit a return of income, The Income-tax Officer may also serve an individual notice requiring a person whose income in the opinion of the Income-tax Officer is liable to tax to submit a return of income. Primarily, the return of income would be made by an association, where the association has earned income, and the Income-tax Officer would also call upon the association to submit a return of its income, and would ordinarily proceed to assess tax on the return so made. But for diverse reasons, assessment of the income of the association may not be possible or such assessment may lead to evasion of tax. It would be open to the Income-tax Officer then to assess the individual members on the shares received by them. The duty of the Income-tax Officer is to administer the provision of the Act in the interest of public revenue, and to prevent evasion or escapement of tax legitimately due to the State. Though an executive officer engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me should not be so read as to defeat the provisions of the Act. (b) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well-recognised limits. Thereafter his Lordship went on to conclude : " The concept of real income certainly is a well-accepted one and must be applied in appropriate cases but with circumspection and must not be called in aid to defeat the fundamental principles of the law of income-tax as developed". 15. In the case of M.M. Ipoh, the Supreme Court had pointed out that the duty of the I.T.O. is to administer the provisions of the Act in the interests of public revenue and to prevent evasion or escapement of tax legitimately due to the State. Therefore, as seen from the observations we have set out aforesaid, the duty of an appellate authority also is to ensure that the provisions of the Act are administered in the interests of public revenue so as to prevent evasion or escapement of tax and at the same time to ensure that only tax legitimately due to the State is collected. 16. If two alternatives are possible, viz., where by applying in seriatim the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the entries in the Rs. 1,40,000 books of account which we have considered as constituting only material relevant for making a best judgment assess- ment since the accounts are not correct and complete in view of the facts detailed earlier. By the addition of Rs. 1,40,000 to the gross profit returned of Rs.2,17,960 the gross profit goes up to Rs.3,57,960, which is about 15% of the turnover of Rs.23,81,817. There is no material which would warrant an upward estimate of the turnover which we therefore leave undisturbed. In the three preceding years 1976-77, 1977-78 and 1978-79 the highest gross profit ever assessed was only 9.6%. In all the succeeding assessment years up to 1985-86, excepting assessment year 1981-82 when an estimated addition has been made and is still the subject-matter of appeal, the highest gross profit ever assessed is only 8%. Looking to these facts and considering that even after elaborate investigations subsequent to the assessments having been originally set aside, it has not been proved that the parties such as M/s Universal Trading Co., M/s Mudasser Leather Co. and M/s Harris Faiz & Co. were fictitious, and on the other hand, the evidence goes to ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
