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TMI Blog1940 (9) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... sis; but in that year the profits in gold transactions, as revealed by the books of the firm, were only 2 % and this was not accepted as correct by the Income-tax authorities, who applied the proviso to Section 13 of the Act and assessed the income of the firm in respect to these transactions upon a 5% basis. For the year 1935-36 the assessment year with which we are now concerned it was found that the profits from transactions in gold were only 0.2% on a turnover of ₹ 5,56,411, and the Income-tax Officer, for reasons which he has given and which we shall discuss hereafter, again applied a flat rate under the proviso to Section 13. He applied a rate of 3% in respect to the sales at Bombay and 5% in respect of local sales. He accepted the books of account as regards silver transactions. There was an appeal to the Assistant Commissioner of Income-tax and he agreed with the Income-tax Officer that the profits of gold transactions, as shown in the books of the firm, were ridiculously low and were not acceptable; but he reduced the rate of profit from 3 to 2 in respect to the sales which were effected at Bombay. The assessee then applied to the Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were materials upon which the Income-tax Officer could find as a fact the method of accounting employed for the gold transactions did not reflect the true profits. He then refers to the case of Ganga Ram Balmokand v. The Commissioner of Income-tax, Punjab [1937] 5 ITR 464 , and he goes on to say : According to this decision the Income-tax Officer was not bound to accept the profits disclosed by the books, but there was no onus on him to prove that those profits were not the real profits. On the other hand, the burden was on the petitioners to show that those profits were in fact the real profits. This burden was not discharged by the petitioners, as their accounts contained no details as to purchases to enable a check to be made of the purchases shown. There were, therefore, I submit materials for the Income-tax Officer's finding of fact. The Commissioner then relies upon the case of Badri Shah Sohan Lal v. The Commissioner of Income-tax, Punjab [1936] 4 ITR 387 ; 10 ITC 5 In that case also the assessee did business in bullion. The rate of profits as disclosed by their books for the year then in question was 0.19% which was held to be below the average expectation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit was revealed by the books of account and there was no stock register, nor had the company ever kept such a register. The Court held that there was no sufficient justification for invoking the proviso to Section 13. This view was not altogether approved by another Bench of the same High Court in the case of Ganga Ram Balmokand v. The Commissioner of Income-tax, Punjab [1937] 5 ITR 464 , which is one of the cases referred to by the Commissioner. At page 478, Din Mohammad J., who delivered the judgment, says: In Pioneer Sports Ltd. 's case (supra) , a Division Bench of this Court has held that the mere fact that a company shows a low rate of profit was no reason for the Income-Tax Officer to reject the total profits nor was the absence of a stock register which the company had admittedly never used before, and that the use of the proviso to Section 13 for the purpose of introducing an arbitrary manner of computing the profits was not justified. In my view, this judgment proceeds on a wrong basis when it criticises adversely the reasons of the Income-tax Officer for rejecting the accounts. Whether the account books are reliable or not is a question of fact, to be deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly justify the practice. Moreover, it seems improbable that a sarraf would not keep a separate book or memorandum showing such details, if only to protect himself in the event of a police inquiry as regards ornament which might still be in his hands and unmelted. Learned counsel for the assessee has given us a translation of an extract from his client's account books and it was-as learned counsel rightly points out-the weight in tolas and mashas of the ornaments purchased each day and the rate per tola which the assessee paid, But in the absence of details as to the nature of the ornaments and who had owned them, no clue was available as the amount of gold contained in each such article and no facility was offered for verification as to whether the price paid had or had not been over-stated. The Income-tax Officer then went on to consider the state of the gold market. He says: I have noted the market conditions and find that the price of gold rose from ₹ 31-2 in Pus to ₹ 32-2 in Magh and ₹ 34-7 in Phagun. In the months of Chait and Baisakh there was a slight fall as the price ranged from ₹ 33-14 to 33-9. After this from Jeth onwards the market was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as found in the gold exported to Bombay by other sarrafs and that the Income-tax Officer did not examine such books in respect to sales at Bombay, the fact that the Income-tax Officer omitted to apply a particular test suggested by counsel will not render his opinion ineffective. Having given the matter our best consideration, we have arrived at the conclusion that the Income-tax Officer did not act arbitrarily, but exercised his judgment, and that there was material before him which was reasonably capable of supporting the opinion which he formed. In this view of the case he was justified in not accepting the firm's books of account as disclosing the true income, gains and profits of the firm. As regards the second question, what we have to consider is whether the income-tax authorites were justified without giving notice to the assessee, in applying the proviso to Section 13 in respect to transactions in gold while accepting the books of account in respect to transactions in silver. Notices were issued to the assessee under Sections 22 (4) and 23 (2) of the Act and the assesse's munib was specifically questioned in respect to the profits from the gold and silver ..... X X X X Extracts X X X X X X X X Extracts X X X X
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