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TMI Blog1961 (1) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Officer Percent. Percent 1951-52 3.33 lakhs 6.3 1952-53 5.8 4.59 lakhs 3.6 8.3 4. For the assessment year 1951-52, the Income-tax Officer found that the purchases were mostly from local weavers and were evidenced by bought notes prepared by the assessee, and there were no independent vouchers made available to prove these purchases. The Incometax Officer, on a scrutiny of the bought notes produced, came to the conclusion that they could not have been the records of original entry maintained at the time of purchases. Further, there were several corrections in dates and months which indicated that they could have arisen only in the process of copying from another record of prime entry. These alterations were : (i) 4-10-1950 was altered to 4-11-1950. (ii) 16-10-1950 was altered to 4-11-1950. (iii) In bought note No. 1286/17-10-1950 name originally written was C. P. C. Sreenivasan Chettiar and the bought note contained the signature of Sreenivasan. The name has been altered to C. P. C. Mari Chettiar. (iv) In bought note No. 660.-The date 20-7-1950 was altered to 21-7-1950. (v) In bought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s annexure B " and forms part of the case. However, the chartered accountant who was representing the assessee had not checked the statement nor was he prepared to certify to the correctness thereof. The Appellate Assistant Commissioner, therefore, held that though the corrections in dates and months in the bought notes referred by the Income-tax Officer were hot of much consequence, by themselves, the proviso to section 13 was rightly invoked and having regard to the result shown by similar merchants, upheld the estimates made. 7. The assessee appealed to the Tribunal and contended that the accounts should have been accepted and that there was no basis for the application of the proviso to section 13 in the circumstances explained in the grounds of appeal reproduced below : The Appellate Assistant Commissioner of Income-tax should have accepted the result as per books in view of the decision accepting the evidence of bought notes by the Income-tax Appellate Tribunal, Madras, in the other I. T. A. No. 5901 of 1950-51, dated March 4, 1952, relating to 1949-50 assessment. The Appellate Assistant Commissioner of Incometax is not correct in rejecting the variety-war quantity tally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of the emergency regulations ; (iii) a proper physical identification and follow up of the stock-in-trade, item-war or variety-wise correlating with the purchase and sales, through a stock register which would show the unsold quantities at any point of time. All the three above requisites are necessary to be fulfilled before the books maintained in any method of accounting can be said to allow the true profits to be deduced therefrom for purposes of the proviso to section I3 set out in paragraph 4 supra. A physical inventory of the stock-in-trade taken out at the close of the accounting period is not a substitute for the variety-wise stock tally ; it is not by itself a conclusive document as the accuracy thereof requires to be further established, the only means to establish it being the varietywise stock tally. Even an overall tally ignoring the different varieties with necessarily varying prices will not come up to standard. " 8. The Tribunal for reasons given in its order, copy whereof is annexed hereunto as annexure " C " and forms part of the case, held that there was no reason to interfere with the addition made in the second year and reduced the addition in the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt under section 66(2) of the Act led to the reference of the following question: "Whether on the facts and in the circumstances of the case, the rejection of the books of account and the application of the proviso to section 13 of the Income-tax Act were justifie ?" In both the assessment years the Income-tax Officer declined to accept the assessee's figures of purchases, supported by the bought notes that he produced, on the ground that there were no independent vouchers. Neither the Assistant Commissioner nor the Tribunal could have considered this as one of the defects in the system of accounts maintained by the assessee. When a similar question arose with reference to the 1949-50 assessment of the same assessee, the Tribunal pointed out "when the bought notes as a rule show the names of the suppliers, variety of cloth, cloth price and suppliers' thumb impressions or signatures, it is not possible to brush them aside without making the slightest enquiry as the Income-tax Officer has done." The attention of the Tribunal was drawn to this earlier judgment in the memoranda of appeals which related to the assessments for 1951-52 and 1952-53. The Income-tax Officer n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, for example, that the purchases were inflated or the sales were suppressed. Though in paragraph 4 of the order of the Tribunal there was remark that all the purchases had not been properly vouched for, we have already pointed out that apparently was not the real basis for rejecting the accounts. The Tribunal obviously realised the impossibility of independent sale vouchers to support the bought notes. There was therefore nothing to show that the accounts of the assessee were not correct. It is true that the gross profits disclosed by the assessee's accounts were low. That by itself was not enough to reject the system of accounts maintained by the assessee. Low gross profits should certainly put the Department on enquiry to verify if the entries in the account books were spurious, or to verify if the system of accounts itself was defective, which made it impossible to accept the book results as disclosing the true profits of the assessee. In other words, on the only ground that the gross profits were low and compared unfavoyrably with those of others, the system of accounting adopted by an assessee cannot be rejected. What the proviso to section 13 requires is that the system o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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