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TMI Blog1957 (4) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... ases country liquor from Government on payment of charges called "duty and cost" and licence fees. The annual licence fee is paid on the total consumption of liquor after deducting the duty and cost paid to Government. In the year under assessment, which is 1946-47, corresponding to the accounting period from the 1st of April, 1945, to the 31st of March, 1946, the assessee returned a net income of ₹ 5,351 from his excise business. The Income-tax Officer did not accept the account-books produced by the assessee in respect of his excise business, and, therefore, on the basis of the last year's assessment in 1945-46 made a best judgment assessment. On appeal, the order of the Income-tax Officer was set aside by the Appellate Assistant Commissioner, who asked him to make a fresh assessment. After remand the Income-tax Officer held that the accounts produced by the assessee were not maintained during the regular course of business, and, therefore, refused to accept the same, and made an estimate of the assessee's income from the excise business. With reference to the sale of country liquor, with which we are concerned in the present reference, the Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account were found, except the books prescribed by the Excise Department. The explanation offered by the assessee was that as the time of the visit was mid-day, the managers or agent of the assessee were away from the shop. This explanation failed to dispel the suspicion entertained by the Income-tax Officer that the accounts produced before him were written up at leisure to suit the assessee's fancy and his views about income-tax liability. The Tribunal accepted this reasoning of the Income-tax Officer for not accepting the accounts produced by the assessee, and, it further mentioned that the suspicion of the Income-tax Officer became a conviction when at one shop the agent admitted that no accounts of the type produced before the Income-tax Officer were written day to day at the shop. In these circumstances, the Tribunal held that the Income-tax Officer had successfully demolished the assessee's position based on his account and proved the unreliability of the assessee's declarations. The Tribunal, therefore, held that the Income-tax Officer was justified in invoking the aid of the proviso to section 13 of the Act, which had been rightly resorted to. For ascertaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted for the purpose of assessment. He, accordingly, adopted the basis of profit at 30 per cent. on the sales as was done by the Tribunal in the previous year and calculating on that basis and after deducting the licence fee, he found the profit of ₹ 39, 114 and, accordingly, he assessed the assessee on that amount. On appeal to the Appellate Assistant Commissioner, he accepted the finding of the Income-tax Officer, and found that the so-called account books which had been produced before the Income-tax Officer had no probative value, because the profits could not be deduced therefrom, and, therefore, the Income-tax Officer was justified in applying the proviso to section 13 for computing the profits by estimate. The reasoning, however, given by the Appellate Assistant Commissioner for excluding the profit of ₹ 39,114 calculated by the Income-tax Officer on the sales of country spirit was that the Income-tax Officer has not been logical in determining the net profit of nearly 5 per cent. of the declared turnover as against the admitted loss of 5 per cent. determined by the Tribunal in respect of the immediately preceding accounting period. He further observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h manner, as he may determine. This question has been examined in detail by a Bench of this court in Sukhdeodas Jalan v. Commissioner of Income-tax [1954] 26 ITR 617 The leading judgment of the court was delivered by my Lord the Chief Justice, Ramaswami, J., as he then was, and I respectfully agree with the interpretation he has put on the proviso to section 13 of the Act. His Lordship, at page 625, observed: "It is clear from the language of this section that profits from the business should be computed in accordance with the method of accounting regularly employed by the assessee, but if the method of accounting regularly employed by the assessee does not reflect the true profits of the business, then the Income-tax Officer has authority to determine upon what basis the computation of profits should be made. In this context section 3 of the Act is important. Section 3 provides that ' Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 13 to the present case, and in making his own estimate of the profit upon such basis and in such manner as he thought proper. The Tribunal, no doubt, has not given reasons for restoring the order of the Income-tax Officer with respect to the country spirit shops, but the fact, that it has restored his order, goes to show, because it has mentioned specifically, that it found no reason to differ from the decision arrived at by it in the preceding year 1945-46. This also clearly goes to show that the Tribunal in the year under assessment also found the account books to be unreliable, as they were found to be so in the previous year by it, for the reasons given by it in the preceding year, and by the Income-tax Officer in the present year. Now, the question arises, whether there was any material for the estimate of the profit in the year under assessment, and whether the previous assessment was a legal evidence, which could be relied upon for the purpose of estimating the profits in the year under assessment. Mr. R.J. Bahadur, who appeared for the Department, has submitted, in the first place, that the question, whether the Income-tax Officer was well warranted in maintainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. In that sense, too, the assessment must be to some extent arbitrary. Their Lordships think that the section places the officer in the position of a person whose decision as to amount is final and subject to no appeal, but whose decision, if it can be shown to have been arrived at without an honest exercise of judgment, may be revised or reviewed by the Commissioner under the powers conferred upon that official by section 33." Mr. Bahadur relied very strongly on the above two cases in support of his contention that the Tribunal and the Income-tax Officer were well warranted in maintaining the same percentage in respect of the year of assessment, and the Tribunal was justified in taking into consideration its own knowledge of previous returns by and assessments of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erely taking for each year the sum total of the premiums received and the sum total of the losses paid and subtracting the one from the other, without regard to the fact that the premiums cover risks running on into subsequent years and the losses include losses arising out of contracts made in previous years. This method is of course not precise or scientific. It proceeds upon the view that when this is done for the three consecutive years indicated by the statute and the figures thus reached are averaged, a fair and reasonable conclusion is attained. This method was adopted long ago and has more than once been the subject of consideration in courts of law. I can conceive it being unfair either in the case of rapidly increasing or of a rapidly diminishing fire insurance business. It may prove unfair in other cases. But in Mc. Gowan's case (supra) it was not proved to be unfair. On the contrary it closely corresponded with the dividends actually distributed and was upon the facts of that case clearly the most accurate and reasonable of the methods which alone were propounded for our consideration. Accordingly it was adopted. I think it is in general a good working rule, but no on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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