Case: S.N. Namasivayam Chettiar Vs. Commissioner of Income Tax, Madras

taken and in the application under S. 66 (2) the matter does not seem to have been raised. The order of the High Court, dated February 26, 1953, does not show that any such question was raised before it; all it shows is that the appellants books of account were found to be defective and afforded no data for arriving at correct profits of the business. The order also refers to the non-production of invoices, the unexplained steep fall in profits made during the year when compared with the previous years. The High Court could not find any legal flaw in the order of the Appellate Tribunal to justify an order for directing the case to be stated. In the grounds of special leave to this Court no pointed reference was made to the material which is now alleged to have been used by the Tribunal without giving an opportunity to the appellant to explain that material. An amended petition by leave of this Court was filed on April 28, 1954, and there also no such pointed reference was made to the material to which objection is now being taken before us. Dhakeshwaris Case, 1955-1 SCR 941 : ( (S) AIR 1955 SC 65 ), cannot, in our opinion, apply to the facts of this case. 10. It was then urged that the four reasons given, which we have set out above, could not make S. 13 applicable. For the rejection of accounts several reasons were given by the Appellate Tribunal; one of these reasons was the non-production of stock registers and manufacturing accounts. This reason was given by the Income-tax Officer and adopted by the Appellate Tribunal. It was submitted that the non-production of stock account was not such a defect as to entitle the Taxing Authorities to reject the books and apply the proviso to S. 13. Reliance was placed on the judgment of the Punjab High Court is Pandit Brothers v. Commissioner of Income-tax, Delhi, 1954-26 ITR 159: ( (S) AIR 1955 Punj 42). The facts in that case were very different. The Income-tax Officer there added a certain sum to the assessees profits on the ground that the expense ratio was too high and the profits disclosed were too low and there was no stock register. The finding in that case was that the assessee maintained regular accounts of his purchases and sales and there was no finding by the Income-tax Officer that in his opinion the income could not properly be deduced therefrom. Khosla, J., (as he then was) there said: There is no finding that there was material before the Income-tax Officer to lead him to the conclusion that a proper statement of income, profits and gains could not be deduced from the material placed before him. All he said was that the profits appeared to be somewhat low and there was no stock register." The want of a stock register was, in that particular case, not a very serious defect because the account books had been found and accepted as correct and disclosed a true state of affairs. It cannot therefore be said that the case laid down as a proposition of law that the want of a stock register by which a proper check could be made was not such a serious defect as to make the proviso to S. 13 inapplicable. 11. The importance of such a register was pointed out by the Nagpur High Court in Ghanshyam Das Permanand v. Commissioner of Income-tax, C. P. and Berar, 1952-21 ITR 79 at p. 81: (AIR 1952 Nag 24 at p. 24).In cases such as the instant case, the keeping of a stock register is of great importance because that is a means of verifying the assessees accounts by having a quantitative tally. If, after taking into account all the materials including the want of a stock register, it is found that from the method of accounting correct profits of the business are not deducible, the operation of proviso to S. 13 of the Income-tax Act would be attracted: Bombay Cycle Stores Co. Ltd. v. Commissioner of Income-tax, 1958-33 ITR 13 (Bom). It may also be added, as was held by this Court in Commissioner of Income-tax v. MacMillan and Co., 1958-33 ITR 182 at p. 197: (AIR 1958 SC 207 at p. 215), that the Income-tax Officer, even if he accepts the assessees method of accounting, is not bound by the figure of profits shown in the accounts. It is for the Income-tax Authorities to consider the material which is placed before them and, if, after taking into account in any case the absence of a stock register coupled with other materials they are of the opinion that correct profits and gains cannot be deduced, then they would be justified in applying the proviso to S. 13.In our opinion therefore when the Tribunal applied the proviso to S. 13 because of the various blemishes which were pointed out by the Income-tax Officer and accepted by the Appellants Tribunal, it cannot be said that there was any error in the order of the Appellate Tribunal justifying the interference of this Court under Art. 136. 12. In regard to the Appeal No. 220 of 1955 for the assessment year 1946-1947 the objection raised was that the Tribunal had committed the same error in that it took into consideration the earlier decision of the Tribunal in an identical situation i.e., in the case of the same assessee in regard to previous years. As we have held that there was no error in the order of the Tribunal in regard to the previous years, it cannot be said that this observation of the Tribunal was in any manner erroneous. This appeal should therefore be dismissed. 13. The other appeals which arise under the Excess Profits Tax Act for the various chargeable accounting periods depend upon the result of the Income-tax assessment appeals and, as we have dismissed those appeals, these appeals also must be dismissed.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]5. It was rightly argued that the power to compute profits under the proviso to S. 13 arises only where no method of accounting has been regularly employed by the assessee and where the method employed in such that the income, profits and gains cannot properly be deduced therefrom. It means that the method adopted by the assessee must prima facie prevail where it is regularly employed, though the Income-tax Officer can resort to the proviso if the method is such that true profits cannot be correctly determined therefrom.In other words, even if the assessee had regularly employed a method of accounting it can be discarded under the proviso if the method does not show correct profits of the yearAfter giving this finding the Tribunal accepted the turnover as shown in the appellants books. In making the computation of profits the Tribunal took into consideration the following matters: that the export of food grains from India was prohibited except under a license that there was an acute shortage of cattle fodder in Ceylon and the appellant had to resort to dubious means in order to obtain grains, that during a substantial portion of the year of accounting there was no price control in Colombo, that as the appellant was a manufacturer of forage by mixing several kinds of grains and powdering them and sold them in packets of various weights, the appellant must have made higher profits than persons who deal in grain only. Keeping all this in view the Tribunal was of the opinion that the rate of 15 per cent adopted in regard to imported grains was not too high but in the case of local purchases it was, and therefore reduced the rate of profit in the latter case to 12 1/2 per cent. It was on this material that the Tribunal adopted the figure of profit as estimate by the Income-tax Officer, and in order to support this opinion further, the Tribunal remarked that in certain cases which had come to its notice the rate of profits went up to 20 per cent8. As a matter of fact, the Income-tax Officer who also rejected the accounts of the appellant had also given similar reasons. He had held that there was absence of vouchers, that the stock account and the manufacturing account had not been kept or produced, that the cheques of other parties had been credited in the accounts of the appellant which had not been explained and that there was purchases of goods and property by the appellant without there being sufficient cash in hand. The Income-tax Officer also said that in other cases where grains were purchased in India and sold in Colombo the rates of profit were higher, ranging between 20 per cent and 39 per cent. He then worked out profits in respect of various grains in the case of the appellant and found that the average rate of gross profit worked out to 15.8 per cent, and in his opinion the gross profit in fodder should have been higher. He further took into consideration the fact that Colombo was bombed in April 1942, resulting in panic in that town and therefore during a portion of the accounting year the appellant might not have made the same margin of profit. He estimated the sales at twenty lacs and the gross profit at three lacs, thus arriving at a figure of 15 per cent on the turnover. It appears to us that neither the Income-tax Officer nor the Appellate Tribunal relied upon the profits made by traders in other cases as a basis for arriving at any conclusion as to the percentage at which the income should be computed and that they used that material for a different purpose. It is extremely doubtful if the order of the Income-tax Officer or the Tribunal would have been different if no reference had been made to the rate of profits in other cases. In other words, the profits in other cases were not the reason for holding that 15 per cent profit was a proper rate but merely an ancillary support to that conclusion12. In regard to the Appeal No. 220 of 1955 for the assessment year 1946-1947 the objection raised was that the Tribunal had committed the same error in that it took into consideration the earlier decision of the Tribunal in an identical situation i.e., in the case of the same assessee in regard to previous years. As we have held that there was no error in the order of the Tribunal in regard to the previous years, it cannot be said that this observation of the Tribunal was in any manner erroneous. This appeal should therefore be dismissed13. The other appeals which arise under the Excess Profits Tax Act for the various chargeable accounting periods depend upon the result of the Income-tax assessment appeals and, as we have dismissed those appeals, these appeals also must be dismissed.