Decided on September 16,1966



K.S. Hegde, J. - (1.)THIS is a reference under section 66(2) of the Indian Income-tax Act, 1922. The question of law reference for the opinion of this court is :
"Whether there was material for the Tribunal to apply the proviso to section 13 and to add the sum of Rs. 1,07,000 as income in the manner it has done ?".

(2.)THE facts of the case are set out in the statement of the case. THE Income-tax Officer as well as the Appellate Assistant Commissioner had rejected the books maintained by the assessee. THEy have given some reasons for not relying on the account books maintained by the assessee. In his appeal before the Income-tax Appellate Tribunal, the assessee challenged the finding given by the Income-tax Officer as also the Appellate Assistant Commissioner to the effect that here are grounds for rejecting the accounts maintained by the assessee. THE Tribunal being a final fact-finding body was required to consider whether the Income-tax Officer and the Appellate Assistant Commissioner were right in rejecting the book results and in proceeding to assess the assessee on the basis of the proviso to section 13 of the Indian Income-tax Act. Though this question was specifically posed before the Tribunal, as is admitted by it in paragraph 18 of the statement of case, yet, the Tribunal did not go into that question. From its order it appears that it did not consider the question whether a case was made out for not computing the profits and gains of the assessee in accordance with the method of accounting regularly employed by him. This was one of the main questions that the Tribunal had to decide. It had failed to decide that question. From its order it does not appear that it relied on any material on record for applying he proviso to section 13 to the assessee's case.
The proviso to section 13 provides that if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine. Dealing with the scope of this proviso, the Supreme Court in Commissioner of Income-tax v. McMillan & Co. observed that :

"The words 'in the opinion of the Income-tax Officer' in the proviso to section 13 of the Indian Income-tax Act, 1922, do not confer a mere discretionary power, but in their context impose a statutory duty on the Income-tax Officer to examine in every case the method of accounting employed by the assessee and (i) to see whether or not it is regularly employed, and (ii) to determine whether the income, profits and gains of the assessee can properly be deduced therefrom. The decision as to the method of accounting is to be arrived at first by the Income-tax Officer after a careful scrutiny of the accounts whether they be simple of complicated, and the power is to be reasonably and judicially exercised, which excludes any subjective or arbitrary decision by the Income-tax Officer; but the power so exercised is not clothed with finality and is not excluded from review by the Appellate Assistant Commissioner and in reviewing the order the appellate authority can exercise the same powers which the Income-tax Officer could exercise."

In the instant case, both the Income-tax Officer as well as the Appellate Assistant Commissioner, after rejecting the assessee's book results, have proceeded to assess him on the gross profit basis. The Income-tax Officer fixed the gross-profit rate at 15 per cent. whereas the Appellate Assistant Commissioner fixed that rate at 12 per cent. The Tribunal rejected the gross profit basis as not being correct. On the other hand, it adopted the yield basis. Our attention was invited to several incorrect statements in the order of the Tribunal. In its order it is stated that the percentage of yield in the accounting year was 21 lbs. per bag as against 24.8 lbs. per bag in 1943. The learned counsel for the assessee represented before us that the accounts of the assessee for the year 1943 were not before the income-tax authorities and, therefore, there was no occasion or opportunity for the Tribunal to find out the percentage yield in the year 1943. The learned counsel for the revenue was unable to controvert that statement. Further, the Tribunal has vaguely stated that, on an examination of comparable cases it would be seen that the yield was as much as 20 per cent. According to the assessee, the only case which could have been compared with his case is that of Pierce Leslie & Co. Ltd. He has given a statement showing the yield derived by Pierce Leslie Company as well as by himself. According to his contention, his case compares favourably with that of Pierce Leslie Company. The Tribunal did not come to the conclusion that the yield shown by Pierce Leslie Company cannot be relied upon. On the whole we are of the opinion that the order of the Tribunal is a highly cursory one. It has not considered the relevant material in the case. Its conclusion that the addition should have been Rs. 1,88,904 does not appear to be supported by any material on record.

(3.)WE are of the opinion that it is necessary in the interest of justice that the Tribunal should re-examine the question arising for decision in this case afresh.
For the reasons mentioned above, our answer to the question referred to us is that the Tribunal's order does not contain any material on the basis of which the Tribunal could have applied the proviso to section 13 of the Indian Income-tax Act, 1922, to the facts of this case. We are further of the opinion that on the material relied on by the Tribunal it could not have added a sum of Rs. 1,07,000 to the income returned by the assessee.

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