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TMI Blog1972 (11) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ured two brands of bidis, i.e., Nos. 22 and 207. The bidis were mostly sent from Sagar, which is the assessee's head office, by railway wagons to Delhi, Agra and Lucknow. The main raw material, namely, tobacco, was imported from Gujarat, while tendu leaves were purchased from the forest contractors of Madhya Pradesh. The market for the bidis was mostly in Punjab and Uttar Pradesh and the selling centres were at Delhi, Lucknow and Agra. In the accounting year a centre was opened at Ambala, but the same was closed down during the year itself and the trading result at that centre was incorporated in the Delhi accounts. The petitioner-firm follows a peculiar method of accounting based on its policy of charging uniform rates for bidis at all distributing centres. The bills that it makes out start with the standard price which it has fixed for its distributors and from this standard price are deducted sales tax either charged as such or by way of profit-rebate and commission payable to the distributors. In the account books sales are shown at the gross amount determined on the basis of the standard rates and deductions on account of sales tax, profit-rebate and commission are separately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected, but he applied a margin of 19% as profit and further he gave the assessee the credit of freight and octroi expenses amounting to Rs. 3,58,873 while arriving at the gross profit shown by the assessee itself. The addition finally sustained by the Appellate Assistant Commissioner came to Rs. 4,75,000. When the matter went to the Income-tax Appellate Tribunal, the learned Members of the Tribunal held that the proviso to section 13 of the Indian Income-tax Act, 1922, was applicable to the trading results. However, after coming to the estimate, the Tribunal reduced the addition to Rs. 2,35,000. As such, the Tribunal reduced the margin of profit applicable to the petitioner-firm from 19% to 17%. According to the Tribunal, there was a contradiction between the basis adopted by the Appellate Assistant Commissioner and the actual working done by him. Therefore, in the view of the learned members of the Income-tax Appellate Tribunal, the margin of profit would work out to 17%. Thereafter, upon an order passed by a Division Bench of this court, the Tribunal has referred the said question for our consideration. In this connection we might further observe that 17% margin of profit was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry for that basis that there should be some material before the Income-tax Officer. He cannot act if there be no material at all. Section 23 of the Indian Income-tax Act, 1922, was more or less akin to section 143 of the Income-tax Act, 1961, although it contained some more provisions. But the general principles in spite of the change in the law have, in our opinion, not very much changed. In this connection we might advert to the view of the learned author, Kanga, in his book The Law and Practice of Income-tax, sixth edition, volume No. 1, at page 726, under the heading " Basis of Estimates ". " The Income-tax Officer may, in the absence of any better evidence, fall back on the assessment of the last preceding year, even if that assessment had been a best judgment assessment. " For this proposition reliance was placed by the author on Gopinath Naik v. Commissioner of Income-tax and Harakchand Radhakishan v. Commissioner of Income-tax. Further on, the learned author observes that : " He may estimate the income after taking into consideration the state of affairs in earlier years and previous returns by and assessments of the taxpayer." For this proposition the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year than in the previous year and, therefore, the margin of profit calculated by the Tribunal on the same basis as the previous year cannot be said to be erroneous. We may observe that the Tribunal had some material before itself which could form the basis of the conclusions it arrived at. Due consideration was also given to the increase in over-head costs of supervision or management. In this connection we might advert to the case of Gopinath Naik v. Commissioner of Income-tax wherein Sulaiman C.J., agreeing with Niamatullah J., held that if the Income-tax Officer having reason to believe that the return was incorrect and incomplete and due to that he made private inquiries behind the back of the assessee after starting proceedings under section 23(3) of the Indian Income-tax Act, 1922, and he made an assessment on the basis of the result of his inquiries and on an appeal the Assistant Commissioner also made private inquiries and made an assessment on the basis of the result of his inquiries and also relying on the previous orders of assessment, the majority of their Lordships held that the inquiries niade by the income-tax authorities behind the back of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be something more than bare suspicion to support the assessment under section 23(3) of the Indian Income-tax Act, 1922. Thus the income-tax authorities are not entitled to base their conclusions on pure guess work. But there must be something more. We may observe that, in the present case, that something more is in the shape of the previous orders of assessment, which would form good material for arriving at a conclusion. Similar was the pronouncement of their Lordships of the Supreme Court in Mehta Parikh and Co. v. Commissioner of Income-tax, wherein their Lordships of the Supreme Court laid down that the decision of the Tribunal must rest not on suspicion but on legal testimony. As laid down by their Lordships in the earlier case mentioned above that legal testimony need not necessarily be evidence under the Indian Evidence Act and it may be sufficient if that constitutes some material or some basis for arriving at the conclusion. Viewed in this light the said Supreme Court case is clearly distinguishable. The learned counsel for the petitioner further invited attention to the observations of their Lordships of the Supreme Court in Omar Salay Mohamed Sait v. Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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