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TMI Blog2006 (9) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... on of profit at the rate of 1 per cent. in respect transactions with clients on notional basis is also not sustainable in law. The ratio available from the judgment of Santosh Hazari v. Purushottam Tiwari [ 2001 (2) TMI 131 - SUPREME COURT] would show that in a case where the findings of fact, by the Tribunal are perverse and contrary to materials on record and based on surmises and conjectures, the High Court u/s 260A would be competent to interfere. The other feature that emerges is that the income has to be deduced from the books of account and other documents furnished and there is no scope for any conjectures and surmises. If the method of accounting is not faulty and there is no suppression of material facts, the authority cannot embark upon a speculative assessment of notional profit. In the instant case, from the discussion made, it would appear that the Assessing Officer did not find any fault with the books of account and the method of accounting employed by the assessee, and that there has been suppression of any material fact which deterred him from computing the actual net profit. The Assessing Officer has not pointed out any defect in the detailed turnover submitted d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business as well as residential premises of the appellant on October 22, 1992, and October 23, 1992, books of account, share certificates, cash amounts were found. The appellant filed his return of income on March 30, 1995, showing a total income of Rs. 1,28,030/-. Notices under section 143(2) were issued whereupon the representative of the appellant appeared and explained the return of income with reference to the seized documents and other materials on record. The Assessing Officer assessed the total income at Rs. 25,66,270/- and computed the tax payable at Rs. 23,40,409/- inclusive of surcharge and interest. The Assessing Officer also directed initiation of penalty proceeding under section 271(1)(c). The Assessing Officer computed the total income in the following manner: (a) Income from business Rs. 27,967/- (b) Income from share transaction business Rs. 3,86,453/- (c) Disclosure made under section 132(4) Rs. 1,00,000/- Rs. 5,14,420/- (d) Profit arising dues brokerage and share dealing Rs. 23,04,236/- Less: net profit shown Rs. 3,52,518/- Rs. 20,51,718/- (e) Income from other sources Rs. 64/- Total income Rs. 25,66,074/- or Rs. 25,66,070/- 5. The appellant being aggrieved prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of account. According to Dr. Saraf, no brokerage was involved for the transactions amongst the brokers and in the present case huge transactions took place between brokers to brokers without involvement of any brokerage. Therefore, Dr. Saraf submitted that the question of assessment on brokerage in respect of such transactions is not permissible. In support of this contention, Dr. Saraf has relied upon regulation 14, appendix A of the Gauhati Stock Exchange Limited and a certificate issued by the general manager. 8. The certificate reads as follows: This is to certify that the member brokers of the stock exchange are at liberty to charge any brokerage to their clients but not exceeding the scale prescribed in appendix A to the regulation 14 of this stock exchange. Further no brokerage is involved in the transactions entered into by one broker with the other at the floor of the stock exchange. 9. From the above, it is apparent that brokers of the Gauhati Stock Exchange are permitted to charge brokerage to their clients not exceeding the rate prescribed in appendix A to regulation 14 and that they are not allowed to charge any brokerage in respect of transactions made by o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Reliance can be placed on the hon'ble Supreme Court judgment in the case of CIT v. A. Raman and Co. [1968] 67 ITR 11, wherein the apex court have observed (headnote): 'The law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands: income which he could have, but has not earned, is not made taxable as income accrued to him.' In view of the foregoing discussion and respectfully following the pronouncement of the apex court and after due consideration of the whole aspects of the case in its entirety, I am of the opinion that the appellant's profit has to be deduced from his accounts. The Assessing Officer ought to have kept in mind that low profit, in the absence of any specific defect found in the account books of the appellant, can never be a sufficient and valid ground for making an addition on his own motion. I, therefore, delete the addition of Rs. 20,51,718/-. 11. The learned Tribunal in paragraph 6 of the impugned judgment and order observed that at the time of hearing the details of turnover were submitted before the Assessing Officer. The Assessing Officer ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Deputy CIT v. Marudhar Hotels P. Ltd. [2000] 245 ITR 138 (Raj) in order to show that findings of fact, howsoever erroneous, cannot be disturbed by the High Court in exercise of powers under section 260A. He has also relied upon a judgment of the Bombay High Court in CIT v. Tata Chemicals Ltd. [2002] 256 ITR 395, in order to show that the question formulated based on facts finally decided by the Tribunal cannot be a question of law. Mr. Bhuyan also relied upon a decision of this court in CIT v. Down Town Hospital Ltd. [2001] 251 ITR 683, to show that remand to the Tribunal for rehearing on factual issues is not permissible under section 260A. 14. To counter the above submission, Dr. Saraf relied upon a judgment of this court in Aluminium Industries P. Ltd. v. CIT [1995] GLR 216. From this judgment, we find that addition of any amount to the gross profit on the ground that the assessee has declared low profit as compared to the previous year cannot be justified in the absence of adequate and relevant materials. For best judgment assessment under section 144, the Income-tax Officer should make an intelligible well grounded estimate. The question formulated on this factual matrix was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the law does not oblige a trader to make the maximum profit that he can out of his transactions. It is the income in the hands of the trader which is taxable. Any income he could have, but not earned, is not exigible to tax as income. In Highways Construction Co. P. Ltd. v. CIT [1993] 199 ITR 702 (Gauhati); [1992] 2 GLR 385, a Division Bench of this court found fault with levy of notional interest on a loan given by the assessee without interest. The Division Bench held that the addition of notional interest is not justified since the assessee did not bargain for interest nor had calculated interest. In such a situation, the Division Bench held that the addition of notional interest as due could not form part of the income. 15. The ratio available from the above judgment would show that in a case where the findings of fact, by the Tribunal are perverse and contrary to materials on record and based on surmises and conjectures, the High Court under section 260A would be competent to interfere. The other feature that emerges is that the income has to be deduced from the books of account and other documents furnished and there is no scope for any conjectures and surmises. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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