Case: Commissioner of Income Tax, Bangalore Vs. K. Y. Pilliah and Sons

the Appellate Assistant Commissioner ". On that view, the second question was also decided in favour of the assessees. The Commissioner of Income-tax has appealed to this court with special leaveThe true income, profits and gains of the assessees could obviously not be deduced from the books of account of the assessees. That was conceded by the assessees. The assessees had carried on transactions in the name of the son of the principal partner, and also in the name of the accountant of the business, and those transactions, besides other transactions, were never entered in the books of account. The Income-tax Officer, therefore, was of the view that computation of taxable income could not be based on the books of account of the assessees. The assessees had disclosed a turnover of Rs. 9, 42, 524-8-9 and a gross profit of Rs. 38, 857-15-6. These figures were in the view of the Income-tax Officer unreliable : the first, because it did not include sales which were " kept out of the accounts ", and the second, because in the light of profits disclosed by other dealers in the same business, it was wholly inadequate. He, therefore, estimated the turnover at Rs. 12 lakhs and the rate of gross profits on the turnover at 6.5%. Transactions of an amount exceeding Rs. 1 lakh were admitted by the assessees as " kept out of the accounts ". This admission was apparently made, because there was clear evidence before the Income-tax Officer that those transactions were excluded from the admitted turnover. There were, besides those transactions, other transactions with Messrs. Hameedia Stores and T. Venkataram of which the extent could not be ascertained4. On the facts disclosed, the Income-tax Officer could exercise the power to estimate the turnover. The power must of course be exercised not arbitrarily, but judicially in the light of relevant materials. It is, however, not even suggested that the Income-tax Officer acted arbitrarily or capriciously in exercising his power to estimate the undisclosed turnover. The estimate made by the Income-tax Officer was affirmed by the Appellate Assistant Commissioner and the Tribunal. There is no reason to believe that the estimate made by the Income-tax Officer was not reasonably madeThe Income-tax Officer computed the profits from the business at a flat rate. The gross profits disclosed by the assessees yielded a rate of 3.8%. It appeared, however, that the normal rate of gross profits in similar business carried on by other merchants in the locality varied from 6 to 7%. The assessees furnished no explanation at all as to why profit at the normal rate was not earned. Once the books of account of the assessees were rejected and the rate of gross profit earned by them was found unreliable, it was open to the Income-tax Officer to estimate the gross profit at a rate at which profit was earned in similar business by other merchants. We are unable to hold that the reasons recorded by the Tribunal in support of its order levying tax on profits computed on estimated turnover of Rs. 12 lakhs at the rate of 6.5 % were " irrelevant "5. The form of the second question needs some explanation. The Income-tax Officer worked out the gross profit on the estimated turnover of Rs. 12 lakhs at 6.5% and that profit amounted to Rs. 78, 000. The assessees had by their return disclosed a gross profit of Rs. 36, 858. In adopting the rate of 6.5% on the estimated turnover, the Income-tax Officer added to the income returned Rs. 41, 142, being the additional profit, and levied tax thereon. It was not suggested that there were any other admissible outgoings which could be debited against that amount. The question whether Rs. 41, 142 were liable to be taxed falls to be determined under the first question. The second question only relates to the amount of Rs. 7, 000 which was the cash credit item which represented an unexplained entry in the books of account of the assessees. In respect of that amount, the Income-tax Officer held that the explanation of the assessees was untrue and the Appellate Assistant Commissioner and the Tribunal agreed with that view. The Income-tax Appellate Tribunal is the final fact-finding authority and normally it should record its conclusion on every disputed question raised before it, setting out its reasons in support of its conclusion. But, in failing to record reasons, when the Appellate Tribunal fully agrees with the view expressed by the Appellate Assistant Commissioner and has no other ground to record in support of its conclusion, it does not act illegally or irregularly, merely because it does not repeat the grounds of the Appellate Assistant Commissioner on which the decision was given against the assessees or the department. The criticism made by the High Court that the Tribunal had " failed to perform its duty in merely affirming the conclusion of the Appellate Assistant Commissioner " is apparently unmerited. On the merits of the claim for exclusion of the amount of Rs. 7, 000, there is no question of law which could be said to arise out of the order of the Tribunal. The assessees had credited Sampangappa with two sums of Rs. 6, 000 and Rs. 1, 000 in the months of November and December, 1950, respectively. It was clear that Sampangappa had not advanced at the material time any amount to the assessees. The explanation of the assessees was, therefore, untrueIt was urged before the Appellate Assistant Commissioner and the Tribunal that the amount of Rs. 7, 000 could still be attributed to the " secreted profits." But no such explanation was furnished by the assessees ; and if the Tribunal declined to accept that contention, no question of law arises from its finding in that behalf. It cannot be said that the Tribunal was on the view expressed by it not justified in bringing to tax the amount of Rs. 7, 000, and no question of double taxation arises

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]4. On the facts disclosed, theOfficer could exercise the power to estimate the turnover. The power must of course be exercised not arbitrarily, but judicially in the light of relevant materials. It is, however, not even suggested that theOfficer acted arbitrarily or capriciously in exercising his power to estimate the undisclosed turnover. The estimate made by theOfficer was affirmed by the Appellate Assistant Commissioner and the Tribunal. There is no reason to believe that the estimate made by theOfficer was not reasonably madeTheOfficer computed the profits from the business at a flat rate. The gross profits disclosed by the assessees yielded a rate of 3.8%. It appeared, however, that the normal rate of gross profits in similar business carried on by other merchants in the locality varied from 6 to 7%. The assessees furnished no explanation at all as to why profit at the normal rate was not earned. Once the books of account of the assessees were rejected and the rate of gross profit earned by them was found unreliable, it was open to theOfficer to estimate the gross profit at a rate at which profit was earned in similar business by other merchants. We are unable to hold that the reasons recorded by the Tribunal in support of its order levying tax on profits computed on estimated turnover of Rs. 12 lakhs at the rate of 6.5 % were " irrelevantx Appellate Tribunal is the finalauthority and normally it should record its conclusion on every disputed question raised before it, setting out its reasons in support of its conclusion. But, in failing to record reasons, when the Appellate Tribunal fully agrees with the view expressed by the Appellate Assistant Commissioner and has no other ground to record in support of its conclusion, it does not act illegally or irregularly, merely because it does not repeat the grounds of the Appellate Assistant Commissioner on which the decision was given against the assessees or the department. The criticism made by the High Court that the Tribunal had " failed to perform its duty in merely affirming the conclusion of the Appellate Assistant Commissioner " is apparently unmerited. On the merits of the claim for exclusion of the amount of Rs. 7, 000, there is no question of law which could be said to arise out of the order of the Tribunal. The assessees had credited Sampangappa with two sums of Rs. 6, 000 and Rs. 1, 000 in the months of November and December, 1950, respectively. It was clear that Sampangappa had not advanced at the material time any amount to the assessees. The explanation of the assessees was, therefore, untrueIt was urged before the Appellate Assistant Commissioner and the Tribunal that the amount of Rs. 7, 000 could still be attributed to the " secreted profits." But no such explanation was furnished by the assessees ; and if the Tribunal declined to accept that contention, no question of law arises from its finding in that behalf. It cannot be said that the Tribunal was on the view expressed by it not justified in bringing to tax the amount of Rs. 7, 000, and no question of double taxation arises