Dipak Kumae Sen, J. - (1.) The facts found in this reference tinder Section 256(2) of the Income-tax Act, 19.61, are briefly stated as follows : A business of manufacture of sprayers and dusters for plant protection was being carried on till 1st May, 1965, by a firm of seven partners. On the 1st May, 1965, Dabros Industrial Company (P.) Ltd., the assessee, was incorporated and took over the business from the firm. The seven partners of the firm became directors of the company.
(2.) In the assessment year in question, i.e., 1966-67, the previous year ending on the 31st December, 1965, the assessee on the basis of a total turnover of Rs. 3,25,756 disclosed a gross profit of Rs. 49,290 calculated at the rate of about 15%. The Income-tax Officer found that the assessee did not maintain any day to day stock book, manufacturing accounts, raw material consumption accounts or production accounts. In the absence of the aforesaid, he held that it was not possible to arrive at the correct profits on the figure disclosed by the assessee. Applying Section 145(1) of the Income-tax Act, 1961, he made an addition of Rs. 15,861 on estimate calculating gross profits at the rate of 20% of the total turnover. According to him this estimate was reasonable.
(3.) In appeal to the Appellate Assistant Commissioner the assessee contended that the estimated rate of 20% was excessive. The Appellate Assistant Commissioner confirmed that there were defects in the accounts and as such the books of the assessee could not be accepted. Considering all the facts, the Appellate Assistant Commissioner reduced the addition by a sum of Rs. 6,500 on the estimated rate of gross profits of about 18%. This estimate was made in the background of the gross profits earned by the partnership firm. For the assessment year 1962-63 the firm had disclosed gross profits at the rate of 18% on its total turnover.;