TaxTMI 
TaxTMI 
TaxTMI 
1989 (9) TMI 181
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....igure after erasure Inflation Rs. Rs. Rs. 26-4-1978 Syed Jaffar Khan, Dharmapuri 1000 23000 43000 20000 12-7-1978 Shaik Haroon, Jolarpet 1641 38153 68153 30000 3-8-1978 Majjed Ahmed, Ambur 1000 24000 44000 20000 20-7-1978 Farooq Ahmed, Jolarpet 1154 25103 55103 30000 16-8-1978 Hyder Ali, Gudiatham 600 16100 26100 10000 26-8-1978 Ibadullah, Cuttack 800 15504 35504 20000 8-9-1978 M. Sultan, Jolarpet 632 17808 27808 10000 . . . . Total 1,40,000 It was also seen that the assessee had borrowed amounts totalling to Rs. 1,00,000 from Universal Tradig Co.M/s Hariris Faiz & Co. and M/s Mussader Leather Co. 3. The ITO also made a separate addition of Rs. 45,000 out of sale-tax amount on the ground that the corresponding sales-tax liability did not pertain to the accounting year. 4. The assessee contested the aggregate addition of Rs. 1,75,000 before the CIT(A). This appeal was decided by the CIT(A) by his order dt. 23rd May, 1983. The CIT(A) referred to the inflaction noticed of Rs. 1,40,00. He noticed that the assessee had purchased hides and skins to the extent of Rs. 90,785 from three parties, viz., M/s Universal Trading Co. M/s Mudas....
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....K. Guru Street, Madras-3, in which the books were kept collapsed due to uprooting of a margosa tree adjacent to the compound wall during the floods. If it were so, it is not clear how the representative agreed to produce the bills and account books relating to the earlier year. In the light of the admitted fact that the entries had been erased and corrected in the books and in the absence of production of any evidence, the explanation that the corrections were made to set right mistake committed by the accountant due to oversight remains unproved. If the explanation was true the assessee should have tried to get at the sellers and obtain carbon copies of the bills issued by them to put the explanation beyond doubt. As observed in the original assessment order as per entries in the books the immediate payments made to the sellers were near about the original figure and the balance was shown to have been paid and only in the subsequent accounting year. It is quite unacceptable that shandy dealers (as claimed by the assessee) would have parted the next accounting year to receive the balance, especially when no further purchases were shown in their accounts in the next year. In the fac....
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....aled and the only relief the CIT(A) directed in his order was that the ITO would also deduction of the actual sale-tax liability out of the provision made of Rs. 45,000. 8. The assessee is in appeal before us and the submission of the learned counsel was that the aggregate of the additions made by the ITO (Rs. 1,40,000 + Rs. 2,19,121 + Rs. 45,000) came to Rs. 4,74,978 and even if the disallowance for sale-tax provision was excluded, the addition would be of Rs. 4,29,978 to the returned gross profit of Rs. 2,17,960 which would give a gross profit of Rs. 6,48,000 on a turnover of Rs. 23,81,000, which was more than 25 per cent. he relied on a tabular statement showing the figures of turnover and profit as under: Asst. yr. Turnover Gross Profit returned Remarks Net profit assessed Rs. % Rs. 1976-77 13,35,407 9.4 G.P. accepted 40,992 1977-78 17,46,458 9.6 G.P. accepted 58,250 1978-79 16,28,443 7.5 G.P. accepted 55,343 1979-80 23,81,817 9.2 (Income returned Rs. 80,800, addition made Rs. 4,74,978) 5,63,220 1980-81 12,20,793 7.6 (Income returned Rs. 60,793, addition made Rs. 1,97,247) 2,57,900 1981-82 11,92,058 8.0 G.P. accepted 50,590 1982-83 11,54....
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....were themselves buying and selling tanned skins. He, therefore, submitted that the assessee could not claim exemption under this provision. There have been several beneficial circulars issued also to avoid cases of genuine hardships. An example is Circular No. 220, dt. 31st May, 1977 (Taxman's IT Rules with Reference--1986--Circulars at a glance) where the following instances are given: 'Following are some of the circumstances which seem to meet the requirements of the rule-- --Purchaser is now is new to the seller. --Transaction are made at a place where either the purchaser or the seller does not have a bank account. --Transactions and payments are made on a bank holiday. --Seller is refusing to accept payment by way of corssed cheque, draft and purchaser's business interest would suffer due to non-availability of goods otherwise then from a particular seller. --Seller, acting as a commission agent, is required to pay cash in turn to persons from whom he had purchased goods. --Specific discount in given by seller for payment to be made by way of cash." The objective of s. 40A(3) is to ensure that the payments are genuine. We have stated this to highlight the fact that ori....
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....2 All 991 : 4 ITC 454; CIT vs. Chan Lo Chwan, Air 1929 Rang 102 : 3 ITC 397). On the other hand, the Madras High Court had dissented from the above view on the ground that s. 13 did not contemplate the rejection of the accounts" (Gunda Subbayya vs. CIT (1939) 7 ITR 21 (Mad FB), Sree Shanmugar Mills Ltd. vs. CIT (1974) 96 ITR 411 (Mad). It may be remembered that the decision in Seth Gurumtukh Singh's case was approved by the Supreme Court in Dhakeshwari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775, 782. Under the 1961 Act, there is no room for such conflict as s. 145(2) covers the situation wholly and squarely." The provisions of s. 145(2) of the IT Act, 1961 read as under: "145(1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall be computed in accordance with the method of accounting regularly employed by the assessee : Provided that in any case where the accounts are correct and complete to the satisfaction of the ITO but the method employed is such that, in the opinion of the ITO, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the ITO ....
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.... justified only if it is on a reasonable basis. It is, however, conceivable that in the nature of things best judgment may involve a certain amount of guess. But that does not mean that the guess can be capricious or unreasonable or totally without a basis. It may be seen, therefore, that assessment by best judgment is a distinct procedure sanctioned by tax laws whenever it is intended." 12. In a case like the present one, therefore, we have to decide whether in order to make a correct assessment, which would be, as far as possible, one of estimate of the turn income, resort should be had to the option given under s. 145(2) or additions should be made under various provisions, which would result in the emerging of an amount would have no relevance or relation to what could be the true income. The IT Act contains many instances where alternative methods of assessment for computation have been provided. For example, in the case of an Association of Persons, the ITO could exercise the option to assess either the members of the association individually or the association itself. In the case of M.M. Ipoh & Ors. vs. CIT, the discretion given to the ITO to bring to tax either the income ....
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....sment already made on the members. Exercise of this power is from its very nature contemplated to be governed not by consideration's arbitrary but judicial. The nature of the authority exercised by the ITO in a proceeding to assessee to tax income, and his duty to prevent evasion or escapement of liability to pay tax legitimately due to the State, constitute, in our judgment, adequate enunciation of principles and policy for the guidance of the ITO." 13. The question had arisen in another case whether action should have been taken under s. 34 of the 1922 Act or under s. 35 of that Act, and in the case of Salem Provident Fund Society Ltd. vs. CIT (1961) 42 ITR 547 (Mad), the Madras High Court observed at page 656 as under: "The real question is not whether s. 34 and s. 35 are mutually exclusive in their operation, but whether in a given case, the statutory requirements are satisfied. If in a given case the requirements of both s. 34 and s. 35 are satisfied, the ITO can have recourse to either. That in such a case there is overlapping will not bar recourse to either section at the choice of the assessing authority." 14. In the case of State Bank of Travancore vs. CIT (1986) 50 CTR....
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.... quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of then duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weight against the assessee. We are wholly unable to subscribe to the view that unless those authorities exercise the power in a manner most beneficial to the Revenue and consequently must adverse to the assessee, they should be deemed not to have exercised it in a proper and judicious manner." 17. In the present case, therefore, where the accounts clearly are not correct and complete the provisions of s. 145(2) are attracted. The Act clearly provides in such cases that the ITO may make an assessment in the manner provided under s. 144 i.e., to the best of his judgment. In coming to this conclusion that this is the more preferable method to be followed in this case, we have not read the Act so as to defeat any provisions thereof, and in our view, we have given due regard to the concept of real income and applied it with care and within the well-recognised limits, which does not defeat ....