9911796707
TMI Blog1989 (9) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... e Inflation Rs. Rs. Rs. 26-4-1978 Syed Jaffar Khan, Dharmapuri 1000 23000 43000 20000 12-7-1978 Shaik Haroon, Jolarpet 1641 38153 68153 30000 3-8-1978 Majjed Ahmed, Ambur 1000 24000 44000 20000 20-7-1978 Farooq Ahmed, Jolarpet 1154 25103 55103 30000 16-8-1978 Hyder Ali, Gudiatham 600 16100 26100 10000 26-8-1978 Ibadullah, Cuttack 800 15504 35504 20000 8-9-1978 M. Sultan, Jolarpet 632 17808 27808 10000 . . . . Total 1,40,000 It was also seen that the assessee had borrowed amounts totalling to Rs. 1,00,000 from Universal Tradig Co.M/s Hariris Faiz Co. and M/s Mussader Leather Co. 3. The ITO also made a separate addition of Rs. 45,000 out of sale-tax amount on the ground that the corresponding sales-tax liability did not pertain to the accounting year. 4. The assessee contested the aggregate addition of Rs. 1,75,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee stating that the bills and books of accounts relating to the earlier year had become not due to dampness and white ants had spolied 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 bills issued by them to put the explanation beyond doubt. As observed in the original assessment order as per entries in the books the immediate payments made to the sellers were near about the original figure and the balance wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepting Farooq Ahmed. 6. The ITO 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 ITO by applying the provisions of s. 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 ITO also made a disallowance of Rs. 45,000 on account of provision for sales tax stating that the provision provision appeared to be arbitrary. The assessee appealed and the only relief the CIT(A) directed in his order was that the ITO would also deduction of the actual sale-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 ITO (Rs. 1,40,000 + Rs. 2,19,121 + Rs. 45,000) came to Rs. 4,74,978 and even if the disallowance for sale-tax provision was excluded, the addition would be of Rs. 4,29,978 to the returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 r. 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 r. 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 r. 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 Universal Trading Co. dt. 16th March, 1981, and they were themselves buying and selling tanned skins. He, therefore, submitted that the assessee could not claim exemption under this provision. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different of Rs. 1,40,000 occurred. This is what the ITO could detect on security 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 s. 143(3): Under the 1922 Act, there was a conflict of judicial opinion on the point whether the ITO, in making a 23(3) assessment, could reject ungenuine or incorrect accounts and invoke the proviso to s. 13. The Calcutta, Nagpur, Allahabad, Rangoon and Lahore High Courts laid down that the ITO could have recourse to the proviso even in such cases (Seth Gurmukh Singh vs. CIT (1944) 12 ITR 393, 416 (Lah); Gangaram Balamokand vs. CIT (1937) 5 ITR 464 (Lah); Navadwipchandra Nagendra Das, In re. (1939) 7 ITR 488 (Cal); Shamarao B. Deshmukh vs. CIT (1939) 7 ITR 515 (Nag); Ram Khelawan and Sahu Thakhur Das, In re, (1939) 7 ITR 607 (All); Ganeshi Lal Chhappan Lal vs. CIT (1941) 9 ITR 91 (All); Radhey Lal Balmukand, In re. (1930 52 All 991 : 4 ITC 454; CIT vs. Chan Lo Chwan, Air 1929 Rang 102 : 3 ITC 397). On the other hand, the Madras High Court had dissented fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt 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 whether a return in filed, it is incomplete or incorrect. In such a case, it will not be expected that accounts or other materials will be forthcoming on with assessment can be directly based. The Assessing Authority who is charged with the duty of assessing the quantum of turnover will have, therefore, to determined 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 on circumstantial evidence or in the form of facts which may lead to a reasonable inference, the Assessing Authority may well be justified in relying on the same and fixing the quantum on an estimate. While the quantum fixed by best judgment should necessarily be based on some material at least. the extend can be justified only if it is on a reasonable basis. It is, however, conceivable that in the nature of things best judgment may inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd would ordinarily proceed to assess tax on the return so made. But for diverse reason as, 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 ITO then to assess the individual members on the shares received by them. The duty of the ITO 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 the administration of the Act the function of the ITO is fundamentally quasi-judicial. The ITO s decision of brings to tax either the income of the association collectively or the shares of the members of the association separately is not final : it is subject to appeal to the AAC and to the Tribunal. In CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225, it was held by this Court that the Tribunal has ample power under s. 33(4) to set aside an assessment made on an AOP and to direct the ITO to assess the members individually on to direct amendment of the assessment already made on the members. Exercise of this power is from its very nature contemplated to be governed not by conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an appellate authority also is to ensure that the provisions of the Act are administered in the interest 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 different provisions of the Act (including s. 40A(3)), a quantum of total income would result, which, looking to all attendant circumstances, is grossly unrealistic and excessive and there is an alternate method provided under the Act, which, if applied, would given a more realistic estimate of income, which, while ensuring that there is no evasion of tax, would also safeguard the tax legitimately due to the State, we feel that the latter method is the one which is to be adopted. We are fortified in this view we are taking by the observations of H.R. Khanna J. in the decision of the Supreme Court in CIT vs. Simon Carves Ltd. 91976) CTR (SC) 418 : (1976) 105 ITR 212 (SC) where it was observed at page 218: "The taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of appeal, the highest gross profit ever assessed is only 8 per cent. Looking to these facts and considering that even after elaborate investigations subsequent to the assessment having been orginally 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 show that such parties really exist, and considering that there is no material to suggest that there was any inflation of price in respect of purchases from these parties in respect of which an addition of Rs. 70,857 was made by applying s. 40A(3) and considering that the remaining purchases were from parties who have also not been shown to be fictitious, or to be from shandies, etc., and there being no material to suspect the genuiness of the price paid in those cases with reference to any comparable rates, etc., we consider, having regard to the total turnover shown and the addition already made of Rs. 1,40,000 to the gross profit on the ground of inflaction which raises the gross profit to Rs. 3,57,960, the only further addition warranted would be additions for any small adjustments ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
