1960 (2) TMI 9 - SC - Income Tax

Supreme Court Upholds Tribunal Decision on Income-tax Act Proviso

The Supreme Court dismissed all six appeals, affirming the Tribunal's application of the proviso to section 13 of the Income-tax Act and the estimated ... Whether the proviso to section 13 of the Income-tax Act is applicable to the facts and circumstances of these cases? Held that:- When the Tribunal applied the proviso to section 13 because of the various blemishes which were pointed out by the Income-tax Officer and accepted by the Appellate Tribunal, it cannot be said that there was any error in the order of the Appellate Tribunal justifying the interference of this court under article 136. Appeals dismissed. Issues Involved:1. Applicability of the proviso to section 13 of the Income-tax Act.2. Justification of the reasons set out by the Appellate Tribunal to invoke section 13.3. Jurisdiction of the Tribunal to apply section 13 and make an assessment on an alleged estimate.4. Adequacy of opportunity given to the assessee to meet the materials upon which the assessment was based.Issue-wise Detailed Analysis:1. Applicability of the proviso to section 13 of the Income-tax Act:The central question in these appeals was whether the proviso to section 13 of the Income-tax Act was applicable. The appellant, a resident in India, carried on extensive trade in Colombo and showed varying gross profit percentages for different assessment years. The Income-tax Officer rejected the accounts and estimated higher gross profits, leading to appeals. The Tribunal found defects in the account books, such as the non-production of vouchers, lack of quantitative tally, unexplained cheques, and investments without corresponding cash flow from Colombo. Based on these defects, the Tribunal concluded that correct profits could not be deduced from the books, thus justifying the application of the proviso to section 13.2. Justification of the reasons set out by the Appellate Tribunal to invoke section 13:The Tribunal's decision was based on several specific reasons:- Vouchers for several purchases were not produced.- No quantitative tally for grains and other materials.- Unexplained payments and cheques.- Investments in property without corresponding cash flow.The Tribunal held that these defects made it impossible to deduce correct profits from the books, thereby justifying the invocation of section 13. The Tribunal's reference to higher profit rates in other cases was used to support its conclusion, not as the primary basis for the percentage determination.3. Jurisdiction of the Tribunal to apply section 13 and make an assessment on an alleged estimate:The Tribunal, after rejecting the account books, accepted the appellant's turnover but computed profits at higher rates based on the nature of the appellant's business and market conditions. The Tribunal considered factors such as the prohibition on food grain exports, the shortage of cattle fodder in Ceylon, and the appellant's manufacturing process. The Tribunal's jurisdiction to apply section 13 was upheld as it found that the method of accounting did not show correct profits, allowing it to estimate the profits.4. Adequacy of opportunity given to the assessee to meet the materials upon which the assessment was based:The appellant argued that the Tribunal violated the principle of natural justice by not disclosing the information it relied upon. However, the court found that the Tribunal did not use undisclosed information as the basis for its conclusion. The Tribunal's findings were based on the defects in the appellant's books and the context of the business operations. The court noted that the appellant did not raise specific objections to the use of profit rates from other cases at earlier stages of the proceedings, and thus, the argument of a violation of natural justice was not upheld.Conclusion:The Supreme Court dismissed all six appeals, affirming the Tribunal's application of the proviso to section 13 of the Income-tax Act and the estimated profit rates. The court found no error in the Tribunal's order that justified interference under article 136. The appeals under the Excess Profits Tax Act, dependent on the income-tax assessment appeals, were also dismissed. The court ordered one set of costs for the consolidated appeals.