TaxTMI 
TaxTMI 
1989 (9) TMI 181
X X X X Extracts X X X X
X X X X Extracts X X X X
....f prices tanned Original figure Revised figure 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ite ants had spolied the complete, set of books of account. Later, at the time of visit by this office Inspector, partner Shri K.M. Noorullah had explained that the room of the building in E.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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pplying the same provisions disallowed Rs. 56,781 and in the case of M/s Harris Faizas & Co., by applying the same provisions, added back Rs. 9,236, or in the aggregate Rs. 70,857 in respect of these three parties. 7. The ITO also made a disallowance of Rs. 45,000 on account of provision for sales tax stating that the provision provision appeared to be arbitrary. The assessee appealed 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  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... required to be upheld. 10. We have considered the rival submissions. There are exceptions under r. 6DD which state that no disallowance should be made in respect of certain types of payments. If the present purchases are of tanned skins from the persons who are tanning skins, then exemption would have been applicable under r. 6DD(f). The submission of the learned departmental representative was with reference to one of the orders of the sales-tax Department, i.e., M/s Universal Trading Co. dt. 16th March, 1981, and they 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e proviso to s. 13. The Calcutta, Nagpur, Allahabad, Rangoon and Lahore High Courts laid down that the ITO could have recourse to the proviso even in such cases (Seth Gurmukh Singh vs. CIT (1944) 12 ITR 393, 416 (Lah); Gangaram Balamokand vs. CIT (1937) 5 ITR 464 (Lah); Navadwipchandra Nagendra Das, In re. (1939) 7 ITR 488 (Cal); Shamarao B. Deshmukh vs. CIT (1939) 7 ITR 515 (Nag); Ram Khelawan and Sahu Thakhur Das, In re, (1939) 7 ITR 607 (All); Ganeshi Lal Chhappan Lal vs. CIT (1941) 9 ITR 91 (All); Radhey Lal Balmukand, In re. (1930 52 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)....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., to determined the turnover to the best of his judgment. Best judgment, however, does not mean that the Assessing Authority can base the quantum determined by him on no material at all. If there is some material either in the form of direct evidence on circumstantial evidence or in the form of facts which may lead to a reasonable inference, the Assessing Authority may well be justified in relying on the same and fixing the quantum on an estimate. While the quantum fixed by best judgment should necessarily be based on some material at least. the extend can be 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) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in the administration of the Act the function of the ITO is fundamentally quasi-judicial. The ITO's decision of brings to tax either the income of the association collectively or the shares of the members of the association separately is not final : it is subject to appeal to the AAC and to the Tribunal. In CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225, it was held by this Court that the Tribunal has ample power under s. 33(4) to set aside an assessment made on an AOP and to direct the ITO to assess the members individually on to direct amendment of the assessment 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stic and excessive and there is an alternate method provided under the Act, which, if applied, would given a more realistic estimate of income, which, while ensuring that there is no evasion of tax, would also safeguard the tax legitimately due to the State, we feel that the latter method is the one which is to be adopted. We are fortified in this view we are taking by the observations of H.R. Khanna J. in the decision of the Supreme Court in CIT vs. Simon Carves Ltd. 91976) CTR (SC) 418 : (1976) 105 ITR 212 (SC) where it was observed at page 218: "The taxing authorities exercise 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 ....