R M P PERIANNA PILLAI AND COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee was a dealer in handloom products which included sarees, shirtings, towels and bed-sheets. In the years of account corresponding to the assessment years 1951-52 and 1952-53, the assessee's books disclosed respectively a turnover of Rs. 3, 33, 000 and Rs. 4, 59, 000. THE gross profits disclosed by his account books were 6.3 per cent. and 3.6 per cent. respectively for the two years. THE Tribunal agreed with the view taken by the Income-tax Officer and confirmed by the Appellate Assistant Commissioner that the gross profits of the assessee compared unfavourably with those of other dealers. THE book results were rejected, and on the application of the proviso to section 13 of the Income Tax Act, 1961, the income for each of the years was estimated by making additions to the disclosed profits. THE Tribunal limited the addition to Rs. 5, 000 for 1951-52 for 1952-53 the Tribunal confirmed the addition of Rs. 10, 000 made by the Income-tax Officer THE directions of this court under section 66(2) of the Act led to the reference of the following question

(2.) IN both the assessment years the INcome-tax Officer declined to accept the assessee's figures of purchases, supported by the bought notes that he produced, on the ground that there were no independent vouchers. Neither the Assistant Commissioner nor the Tribunal could have considered this as one of the defects in the system of accounts maintained by the assessee. When a similar question arose with reference to the 1949-50 assessment of the same assessee, the Tribunal pointed out " when the bought notes as a rule show the names of the suppliers, variety of cloth, cloth price and suppliers' thumb impressions or signatures, it is not possible to brush them aside without making the slightest enquiry as the INcome-tax Officer has done. " The attention of the Tribunal was drawn to this earlier judgment in the memoranda of appeals which related to the assessments for 195I-52 and 1952-53The INcome-tax Officer noticed certain corrections and inaccuracies in the accounts, but the Assistant Commissioner was convinced that there was nothing suspicious about these corrections, and the Tribunal apparently shared the view of the Appellate Assistant Commissioner Paragraphs 3 and 4 of the order of the Tribunal which contained the contentions considered by the Tribunal and its findings thereon ran

(3.) SO far as the second year is concerned, no attempt has been made before us to show that all the purchases had been properly vouched. We had a look at the comparable cases for the two years in question and are left with the feeling that the percentage of 5.8 applied in respect of the year 1952-53 is well below the average applied in all the other cases. Therefore, we see no reason to interfere with the addition made in respect of that year. " * The principal point made was there was no variety-wise stock tally. Annexure B contained quantitative stock particulars for 1951-52 and the assessee gave similar particulars for 1952-53 in annexure A. Annexure B was filed only before the Appellate Assistant Commissioner but in the next year the assessee filed the statement (annexure A) even at the stage of assessment by the Income-tax Officer. In both the statements, particulars were furnished for goods of the different counts of yarn 40, 60 and 80, and there was another heading styled " miscellaneous ". These statements were prepared from the account books of the assessee. Though it was pointed out that the statement of the first year was not signed by the chartered accountant employed by the assessee, the correctness of the statement of neither year was found against. We have also pointed out that neither the Appellate Assistant Commissioner nor the Tribunal found that any entry in the account books, either sale or purchase, was untrue. There was no finding, for example, that the purchases were inflated or the sales were suppressed. Though in paragraph 4 of the order of the Tribunal there was a remark that all the purchases had not been properly vouched for, we have already pointed out that that apparently was not the real basis for rejecting the accounts. The Tribunal obviously realised the impossibility of independent sale vouchers to support the bought notes. There was therefore nothing to show that the accounts of the assessee were not correctIt is true that the gross profits disclosed by the assessee's accounts were low. That by itself was not enough to reject the system of accounts maintained by the assessee. Low gross profits should certainly put the Department on enquiry to verify if the entries in the account books were spurious, or to verify if the system of accounts itself was defective, which made it impossible to accept the book results as disclosing the true profits of the assessee.