TaxTMI 
TaxTMI 
1967 (6) TMI 13
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....nting period for the business profits tax assessment is April 1, 1946, to March 31, 1947. The assessee's lines of business are diverse, though the most important of them was manufacture and sale of dyed and printed cloth. It held wholesale quota for Mettur mulls. Supplying of cloth for commission was another business. In so far as the manufacture and sale of dyed and printed cloth is concerned, the assessee did its manufacture and business in several ways. It purchased mill cloth, got it bleached, dyed and printed through professional dyers and sold the same. It also purchased dyes and chemicals, dyed some cloth in its own karkhana by engaging workers and sold the dyed cloth in the market. It also purchased dyed cloth in the market, got it printed and sold it. Besides these, the assessee-firm bought and sold ready made dyed and printed cloth. In addition to these lines of dyed cloth business, it was also selling mill and handloom cloth undyed and unprinted. The assessee filed its return for the account year Vyaya ending on 22nd March, 1947, showing an income of Rs. 32,354, out of which Rs. 30,859 was shown as income from business. It was called upon to produce its account boo....
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....ed and printed elsewhere and selling the final dyed and printed cloth in the market. The profit in business (a) is bound to be different from the profit made in business (b), likewise the percentage of the profit in business (c) could not be the same in business (d). These factors have necessarily to be taken into consideration in arriving at the amount of profit. There could not be a rule of thumb in these matters. Just as the Income-tax Officer ignored this aspect of the matter completely, the Appellate Assistant Commissioner and the Tribunal also appear to have bestowed no thought over it. The Tribunal says in its order : ' The departmental representative brought to our, notice cases where the gross profits in dyeing and printing was 50% or 55%. Due to the special circumstances that were present during the year of account and a great demand for dyed and printed goods in that year, the rate does not appear to be vindictive or capricious. It is on the whole fair.' The Tribunal seems to have taken it for granted that the assessee would have made as much profit as the others, because of the boom period, without going into the matter as to whether such profit could be mad....
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....rived at the figure of Rs. 1,20,692 and under method No. 2, at Rs. 1,20,922 as the total income from the entire business during the current period. He, therefore, fixed the income in round figures at Rs. 1,20,000. The assessee took several objections before the Appellate Tribunal to this estimate and report prepared by the Income-tax Officer. One was that the turnover of Rs. 2,35,000 was for all the different kinds of business carried on by the assessee and was not in respect of the business of manufacture and sale of dyed and printed cloth only. Another objection of the assessee was that the Income-tax Officer had not disclosed the nature of the local enquiries made at the time of the original assessment. It also raised the contention that no material which could form the basis of an order for computation under section 13 of the Act, was communicated to the assessee and no information and explanation was sought from it by the Income-tax Officer, in respect thereof. The Appellate Tribunal, however, repelled these objections and held that the assessment made by the department was fair and reasonable and needed no revision. It accordingly dismissed the assessee's appeal. Thereupon, t....
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....ain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the Income-tax Officer and the Tribunal, seems to be based on surmises, suspicions and conjectures. It is somewhat surprising that the Tribunal took from the representative of the department a statement of gross profit rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that the statement had no relevancy whatsoever to the case of the mill in question. It is not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere and whether these mills were similarly situated and circumstanced." He also invited our attention to the decision of a Bench of this court, of which one of u....
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....e us that the criticism levelled by the learned counsel for the assessee is unwarranted and unjustified as the department has afforded ample opportunity to the assessee and gave him such material for the assessment as would form the basis for an order under section 13 of the Act. He invited us to the several passages in the statements of the Tribunal the remand report of the Income-tax Officer and other records, in an endeavour to show that ample opportunity and material were made available to the assessee. The crux of the order passed by the department is that on private enquiry the Income-tax Officer came to know that the assessee had made a turnover of not less than Rs. 2,35,000 in its business of manufacture and sale of dyed and printed cloth. It is only on this information as a basis, the Income-tax Officer employed his two methods in arriving at the suppressed income and, consequently, at the total income from the entire business. It was the complaint of the assessee even on the previous occasion, that the material gathered from such private enquiries, which led to the estimate of the total turnover at Rs. 2,35,000, was not disclosed to him. This court even then upheld tha....
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....arieties of business, observed in paragraph 2 of its order that : " We do not agree with him in that respect, for we find in the note appended to the assessment order, which, perhaps, was not communicated to the assessee along with the assessment order, the Income-tax Officer has given definite indications that the estimate of Rs. 2,35,000 was in regard to turnover in manufacture and sale of dyed and printing cloth only." It is, therefore, evident that a certain note containing the indications of the total estimate was not communicated to the assessee. In view of these circumstances we cannot but agree with the contention of the learned counsel for the assessee that the material relating to the private enquiry was not furnished to the assessee and that full opportunity was not afforded in such a manner as to give full opportunity to him to meet the substance of the private enquiry. The department also tried to support and sustain its estimate of the total turnover of the assessee's business of manufacture and sale of dyed and printed cloth at Rs. 2,35,000 by the following reasoning. It thought that the assessee had not brought into account, purchases of dyes and chemicals ....
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....s selling it after such printing. All these obviously require the use of dyes and chemicals. The department had no material to show, and at any rate no such material has been placed on record to show, that the unaccounted dyes and chemicals of the value of Rs. 4,533 went into and were also utilised in the suppressed turnover which would form part of the business of manufacture and sale of dyed and printed cloth as distinct from other lines of business which were admittedly carried on by the assessee and in respect of which the return of the assessee was accepted. There is also another hurdle in the way of the department. It is stated that even in respect of business of manufacture of dyed and printed cloth, it covered two different categories of manufacture : one is manufacture of dyeing and printing of cloth in the own karkhana of the assessee and the other, dyeing and printing of cloth outside the karkhana through professional dyers and printers. The Income-tax Officer stated that the manufacture and sale of dyed and printed cloth through professional dyers and printers, constituted a major portion of the business and the manufacture in the assessee's own karkhana was of a neg....
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.... the turnover resulting from the manufacture done outside the karkhana which is found to be the major portion should be much higher and the estimate of Rs. 2,35,000 would not fit into these calculations. Thus, no proper nexus or connection is made out between the unaccounted chemicals and the estimate of the total turnover. Judged from any angle, this estimate of Rs. 2,35,000 on the basis of the unaccounted chemicals and dyes appears to be unwarranted. Equally unwarranted in our view is the adoption of the rate of profit at 50% of the total turnover. The assessee estimated his profit only at 18% while the department puts it at 50%. This is done by the department on the basis of the disclosed gross-profit rate in some comparable cases. Even in that section of the business of the assessee which deals with dyeing and printing of cloth and selling it, there were different ways of manufacture adopted by the assessee. As has already been stated, the assessee purchased koras, mulls and handloom cloth, got them bleached, dyed and printed through professional dyers. It also purchased dyes and chemicals, dyed some cloth in its own karkhana by engaging dyeing coolies and sold the same. It ....