Shah, J. - (1.) In their return of income for the assessment year 1951-52 the respondents, Messrs. K. Y. Pilliah & Sons, declared Rs. 18,679 as their income from business. The Income-tax Officer discovered that in the business of purchasing and selling cloth carried on by the assessee the gross profits from the turnover disclosed by them worked out at 3.8% while in the case of other merchants carrying on similar business in the same locality it worked out at 6 to 7% that the relevant vouchers for purchases by the assessee of goods were not produced, and that in respect of those transactions, besides the entries in the books, of account, there was no evidence of actual payment of credit purchases. the Income-tax Officer was, therefore, of the view that the "purchases remained unproved". Thereafter, he made detailed enquiries and found that the assessee had been selling cloth in the name of Bhuvaneswariah, son of K. Y. Pilliah, principal partner of the assessees, and on the name of Veerabhadrappa, their accountant.
(2.) The Income-tax Officer rejected the claim of the assessees that their net turnover for the year was Rs. 9,42,524-8-9 and estimated the turnover at Rs. 12 lakhs and estimated their gross profit at 6.5% on the estimated turnover.
(3.) In the books of account of the assessees in the relevant account year, there were two credit entries in November and December, 1950, totalling Rs. 7,000 in the name of one Sampangappa. Sampangappa was examined by the Income-tax Officer. He admitted that he was not in a position to advance any account at the relevant time. The Income-tax Officer treated Rs. 7,000 as the assessees income form undisclosed sources.;