COMMISSIONER OF INCOME TAX Vs. MUSSADILAL RAM BHAROSE

JUDGEMENT

(1.) This appeal arises out of the decision of the Allahabad High Court dated 24-9-1971. The High Court by the order impugned dismissed an application under S. 256(2) Income-tax Act, 1961 (hereinafter called the 'Act'). The assesses, a firm of two partners was at the relevant time a licenced vendor of country liquor. For the assessment year 1965-66, the Income-tax Officer rejected its account book on the ground that sales and expenses were not verified and the margin of profit shown was low. It may not be inappropriate in view of the contentions urged before us to refer to the order of the Inspecting Assistant Commissioner for the assessment year 1965-66 under S. 27 1 (1)(c) read with S. 274(2) of the Act.

(2.) For the assessment year 1965-66, the Income-tax Officer, as noted by the Inspecting Assistant Commissioner, rejected the book result showing sales of country liquor at Rs. 5,82,234/- and the profit margin at 4% for lack of verifiability of sales and expenses and low margin of profit. The Income-tax Officer estimated the sales at Rs. 7,60,000/- being Rs. 6,50,000/- in Lakhibagh shop and Rs. 1,10,000/- in Magra shop, and adopted the net profit rate at 8% thereby computing the profit at Rs. 60,800/- and the total income was computed at Rs. 60,936/- after addition of Rs. 136/- for interest receipts. On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. As the total income returned was less than 80% of the correct income computed, the case fell within the ambit of the Explanation to S. 271 (1) of the Act.

(3.) In pursuance to the notice under S. 274 read with S. 271 of the Act for default under S. 271(1)(c), the assessee showed cause. It was urged on behalf of the assessee before the Inspecting Assistant Commissioner that the returned income was based on the books of accounts and excise registers maintained by the assessee firm and the income was estimated. It was further urged that the failure to return the correct income, if any, did not arise from any fraud or gross or wilful neglect on the part of the assessee firm. The Inspecting Assistant Commissioner, however, held that by producing what the Inspecting Assistant Commissioner termed to be defective account books, it could be said that the assessee had shown correct income. The Inspecting Assistant Commissioner further noted that the sales and expenses were unverifiable. The Inspecting Assistant Commissioner was further of the opinion that the addition made by the Income-tax Officer was due to non production of the material data which the assessee firm ought to have produced for proper determination of its income. In arriving at the net profit @8%, the Income-tax Officer had made the allowance for expenses and purchases at 92% of the sales at Rs. 7,60,000/-i.e. at Rs. 6,99,200/- which covered all the expenses and purchases found reasonable. The Inspecting Assistant Commissioner was therefore, of the opinion that the assessee firm was grossly negligent and had not discharged the onus of proving that the said difference between the income returned and the correct income did not arise from any gross or wilful neglect on the part of the assessee and as such, in view of the Explanation to S. 271(l), the provisions of S. 271(l)(c) were clearly attracted. On this basis the Inspecting Assistant Commissioner levied a penalty of Rs. 8,300/- under S. 271(1)(c) read with S. 274(2) of the Act.