- (1.) THE assessee is a private limited company and deals in iron and steel. It has its head office at Jullundur and stockyards at Chandigarh and Karnal. For the assessment year 1965-66, the assessee declared the income at Rs. 13,19,200. Along with the return, the assessee filed the report dated 30th November, 1964, of the directors and the statement of accounts including profit and loss account and the balance-sheet. By letter dated 10th September, 1969, the assessee claimed a loss of Rs, 60,000 on the ground that the books were maintained by the previous secretary against whom a case is pending in the court of law ; on checking, it was found that there was no deposit with M/s. Tata Iron and Steel Company and Hindustan Steel Ltd. , whereas there was a deposit (security) of Rs. 10,000 with M/s. Indian Iron and Steel Company as against Rs. 20,000 shown in the balance-sheet. It may be pointed out that in the balance-sheet a sum of Rs. 30,000 was shown as deposit with Tata Iron and Steel Company and a sum of Rs. 20,000 was shown as deposit with Indian Iron and Steel Company. The assessee also produced copies of the printed balance-sheet as on 30th June, 1964, and 30th June, 1967, along with the auditor's report dated 8th May, 1969. According to this report, the deposits worth Rs. 60,000, referred to in the earlier part of the judgment, were nonexistent. It was also pointed out that a case under Sections 406, 408, 409, 477a and 465, etc. , of the Indian Penal Code was registered against Shri D. D. Mehta, previous secretary of the assessee-company, who was also placed under suspension on 25th February, 1968.
(2.) THE ITO rejected the claim of the assessee for allowing the loss of Rs. 60,000.
(3.) THE appeal before the AAC was dismissed. For the assessment year 1969-70, the assessee-company declared its sales at Rs. 18/18, 696 and gross profit at 1%. The ITO came to the conclusion that the books of account pertaining to the assessment year 1969-70 were not correctly maintained and that a gross profit shown by the assessee was not acceptable. He, therefore, estimated the sales at Rs. 19,00,000 and gross profit at 5%. He computed the business income of the assessee at Rs. 78,341.;