1953 (4) TMI 22 - HC - Income Tax

Court Upholds Disclosure Requirement for Income-tax Officer's Computations

The court ruled in favor of the requirement for the Income-tax Officer to disclose the basis and manner of computation under the proviso to Section 13 of ... - Issues Involved:1. Disclosure of the basis and manner of computation by the Income-tax Officer under the proviso to Section 13.2. Material on record to warrant the estimate of the profits at the several rates adopted.Detailed Analysis:Issue 1: Disclosure of Basis and Manner of ComputationThe first issue addresses whether the Income-tax Officer is bound to disclose the basis and manner of computation of income, gains, or profits under the proviso to Section 13 of the Income-tax Act. The judgment unequivocally answers this in the affirmative. The court emphasizes that the proviso to Section 13 does not permit the Income-tax Officer to make a 'leap in the dark' but mandates him to compute the income 'upon such basis and in such manner as the Income-tax Officer may determine.' This necessitates the officer to find out and disclose the basis and manner of computation. The assessment is conducted under Section 23(3), which involves hearing evidence produced by the assessee and any other evidence required by the Income-tax Officer. The court stresses the principles of natural justice, requiring the officer to give the assessee an opportunity to contest any material used against him, even if the source of information need not be disclosed. The judgment refers to previous rulings, including Sarupchand Hukamchand In re and Commissioner of Income-tax v. Khemchand Ramdas, to underscore the necessity of a 'speaking order' to ensure the assessee's right of appeal is not rendered illusory. The court also notes that the Income-tax Officer cannot simply add a lump sum to the income or disallow business expenses without proper basis, as this would be contrary to law.Issue 2: Material on Record for Profit EstimatesThe second issue pertains to whether there is material on record to justify the profit estimates at the various rates adopted by the Income-tax Officer. The court finds the statement of the case by the Appellate Tribunal unsatisfactory but opts to examine the Income-tax Officer's orders directly to avoid delays. The court notes that the assessee's method of returning profits by estimate was unwarranted and that the Income-tax Officer rightly rejected the method of deducing gross profits due to the absence of opening and closing stock details. However, the books themselves were not rejected as unreliable. For the Bada Bazar shop, the Income-tax Officer estimated trading profits at 15% for both years, a rate maintained in appeal and deemed reasonable given the circumstances, including the rise in handloom cloth prices. For the Katra Bazar shop, where sales included both mill-made and handloom cloth, the officer estimated profits at 12.5%, considering the disparity between purchase and sales figures and the lack of detailed classification of sales. This rate was also upheld by the Appellate Tribunal. For standard cloth sales, the officer determined a profit rate of 1.5%, accounting for expenses and sub-dealer margins, which the assessee failed to contest with proper details. The Appellate Assistant Commissioner scrutinized and accepted the trading profits for the yarn business. The court concludes that there is sufficient material on record to support the profit estimates at the rates adopted.Conclusion:The court answers the first question affirmatively, requiring the Income-tax Officer to disclose the basis and manner of computation. For the second question, the court finds adequate material on record to warrant the profit estimates at the adopted rates. No order as to costs is made, and a copy of the judgment is directed to be sent to the Appellate Tribunal under Section 66(5) of the Act.