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TMI Blog1938 (2) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... to the year 1934-35. They can be disposed of together, as was done by the Assistant Commissioner and by the Commissioner. The questions upon which we are asked to direct the Commissioner to state a case are as follows:- (a) Whether in view of the facts of the case the stock valuations should not have been accepted and whether the books could be legally rejected and an estimated profit could be rightly made on percentage basis under Section 13 of the Act? (b) Whether the flat rate 30 per cent. was rightly taken by the learned Income Tax Officer for estimating net profit (less interest on borrowed capital) when the evidence before him in the shape of the books showed an average gross profit of 15 per cent? In connection with Case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he correctness of that statement. Thereupon, the Income-tax Officer assessed profit at the rate of 30 per cent. of the sale proceeds ; and he adopted the same principle in respect to the years 1933-34 and 1934-35, except as regards one article relating to the year 1933-34. This was a pearl necklace consisting of 109 pearls which had been sold to an American for ₹ 70,000. According to the stock book, the value of this article was ₹ 45,000 but the Income-tax Officer did not accept this valuation and assessed the profits from it at 60 per cent of its sale proceeds. He accepted the profits disclosed by the assessees in respect to the commodity which had been purchased in partnership with another party in respect to the year 1934- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment and that the authorities are not entitled to object to such valuation so long as the total valuation does not exceed ₹ 14,00,000, which is said to be the total value of the stock in trade and in respect of which there is apparently no dispute. He argues that the assessees are at liberty to distribute this ₹ 14,00,000 among the various articles as they please and that there can be no objection on behalf of the Income tax authorities in respect to the valuation thus allocated to any particular item so long as the whole does not exceed ₹ 14,00,000. What we have to consider is whether this contention gives rise to any question of law. In Feroze Shah v. The Commissioner of Income-tax, Punjab and N.W.F. Province (1931 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly unreasonable or arbitrary in applying the rate of 30 per cent. upon sale proceeds, especially when no objection to the application of such rate for the year 1932-33 was made. If we think-as we do-that the Income tax department was entitled in its discretion to reject the books and if the principle of a flat rate thereby became applicable, the amount of such rate was entirely in the discretion of the Income- tax authorities, as held by their Lordships of the Privy Council in the case above referred to. There remains the question of the pearl necklace. Prima facie the rate of 60 per cent. appears to be high; but in the absence of anything to suggest the contrary, we must assume that the Income-tax authorities used their discretion rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellery, and particularly of a piece of jewellery of this nature. The Assistant Commissioner might have added that the rate of profits is often exceptionally high where the vendee is a rich American. In any case, the mere fact that a high rate of profits has been applied will not by itself warrant this Court in directing the Commissioner to state a case. Moreover, it is to be observed that in their application to the Commissioner under Section 66(2) there was no request to him to refer to this Court any question as regards the rate of 60 per cent. which had been applied in respect to this pearl necklace; the application was concerned exclusively with the flat rate of 30 per cent. which had been applied in respect to other articles. F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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