V.D. Bhargava, J. - (1.) THIS is a reference Under Section 24 of the U.P. Agricultural Income Tax Act. This Court had directed the Revision Board to state a case on the following question: Whether the Board has any power to disallow any part of the amount shown by the Company in its return of income, in respect of salaries of its staff; if so, did the Board have any material upon which to hold that the salaries of the staff paid in the previous year amounted to Rs. 7,488/15/0 - The facts of the case appear to be that the Assessee is a joint stock company run under the name and style of "The Lakshmi Sugar and Oil Mills Ltd., Hardoi," and the dispute relates to the assessment year 1358F. The return was submitted by the company and a notice Under Section 15(3) of the Act was issued and served on the manager of the company and in compliance with that notice accounts were furnished by the company on 12 -9 -1950. According to the return the income mentioned therein was Rs. 27,542/9/0 and the deductions claimed under different heads amounted to a sum of Rs. 29,796/12/0. So far as the income was concerned, it was not accepted by the assessing officer on the ground that according to the report of the patwari and according to Government calculations the income should have been Rs. 34,516/3/3 and since no details of the income had been supplied, therefore, the assessing officer treated the income as Rs. 34,516/3/3.
(2.) AS regards the deductions, the assessing officer accepted practically all the deductions except a few and allowed a total deduction of Rs. 26,630/12/ and the assessment was made on a net income of Rs. 7,885/7/3. There was a revision filed by the Assessee Under Section 22 of the Act and also an application in revision on behalf of the State. The application in revision of the Assessee was dismissed but the revision of the State was partly allowed. The assessing officer had allowed a deduction of a sum of Rs. 11,488/15/0 on account of the staff salary. This amount was reduced by the Board in the revision by the State to a sum of Rs. 7,48/15/0. The order by which this amount was reduced was in the following words: We, however, find ourselves unable to uphold the deduction of Rs. 11,488/15/0 allowed on account of staff salaries. The area of the farm is not more than 1000 acres. In the return the details of the staff salaries were not given. There were no accounts in respect of income before the assessing authority and we fail to understand how he accepted the amount alleged to have been incurred on account of salaries when the income as shown in the return was Rs. 27,542/9/0 only. We reduce the amount of salaries of staff to Rs. 7,488/15/ -.
(3.) LEARNED Counsel for the Applicant has argued that this cut in the deduction was not based on any evidence or material before the Board and it was not within the jurisdiction of the Board to reduce the amount in such an arbitrary manner and he placed reliance on Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax West Bengal, AIR 1955 (SC) 65. It was contended by learned Counsel for the Appellant in the Supreme Court that the returns had been submitted by the company of that case but the assessing officer had increased the income without any material or evidence being before him. The reasons given for the increase were in the following words: From the point of view of profits, 1943 was a very good year, if not the best, for all cotton mills. Expenses on cotton and fuel show that production was undoubtedly higher whereas ii is found that the gross profit by this company is low. I conclude that full amount of sales have not been accounted for. It is expected that actually the rate of gross profits should have been higher this year. In view of the higher costs of establishment, I take it that the rate of about 40 per cent i.e. near about the rate disclosed in 1942 account should have been maintained. I add back the Rs. 36 lakhs for unaccounted sales.;