Case: Chhabildas Tribhuvandas Shah and Others Vs. Commissioner of Income Tax, West Bengal

1. This is an appeal by special leave granted by this court on November 5, 1962, and arises in the following circumstances. The appellant filed a return showing an income of Rs. 78, 350 for the assessment yearax Officer in his assessment order dated February 26, 1958, did not accept the trading accounts and added Rs. 75, 000. He came to the conclusion that the profits disclosed in comparison with the earlier years were too low and there were nostock details for the purpose of verification. Another factor which he took into consideration was the ridiculously small withdrawals for personal expenditure in the partners accounts. Shri R. S. Sanghvi had only withdrawn Rs. 6, 900 and Shri C. T. Shah had only withdrawn Rs. 6, 300 The assessee appealed to the Appellate Assistant Commissioner, who by his order dated October 16, 1958, accepted the appeal and deleted the addition of Rs. 75, 000, but as the closing stock of Eveready torches wasto the tune of Rs. 4, 490, he only allowed a reduction of Rs. 70, 510. He accepted the contention urged on behalf of the assessee that in view of the fact that the assessee had to deal in hundreds of items of goods of various sizes and varieties, it would mean a very heavy task to keep a stock account. He came to the conclusion that "if the sales made on commission basis are excluded on the balance sales the average profit margin would go up to about 5 1/2 per cent. which cannot be said to be unreasonable or inordinately low." He further stated that theOfficer had not been able to cite any case where the profit margin disclosed was higher than that revealed by the books of the assessee. He could find out no defect in the accounts as such or any suppression of sales. He further remarked that the purchases were vouched, the sales were vouched and the parties involved in these transactions were identifiableTheOfficer appealed against the above decision to theAppellate Tribunal, which restored the addition made by theOfficer, less the above sum of Rs. 4, 490.2. It was pointed out to the Appellate Tribunal that the Appellate Assistant Commissioner had lost sight of the fact that even in the preceding year goods from the National Carbon Company Ltd. did figure in the trading account of the respondent, and that if these goods are eliminated from the accounts, the margin of profit in the preceding year was 11.3 per cent. as against 5.8 per cent. in the year of account, as worked out by the Appellate Assistant CommissionerThe Tribunal observed that"Since the respondents were doing business in the main on a wholesale basis there should have been no difficulty in tallying quantities in respect of major items of the trading account. In the absence of such a tally, the fall in the margin of profits cannot be satisfactorily explained by a proper analysis of the trading account. The fall in the margin is all the more difficult to explain in view of the fact that the respondents also had quota of imports worth about Rs. 8, 00, 000 which would have given them a handsome margin of profit. We are, therefore, satisfied that the proviso to section 13 was clearly applicable to the trading results in this case and having regard to the nature of business and the availability of imported materials the margin taken by theOfficer seems to be quite reasonable."3. The assessee applied for a statement of the case to theAppellate Tribunal, under section 66(1) of the IndianAct.The Appellate Tribunal, by its order dated December 19, 1960, rejected the application on the ground that their conclusions in the order were essentially findings of fact and based on adequate and proper material on record and did not give rise to any question of lawThe assessee applied to the High Court, under section 66(2) of the IndianAct, but the High Court, by its order dated October 3, 1961, dismissed the petition. This court, however, granted special leave to appeal and the appeal is now before us for disposal.

Reasoning: In our view this decision has no application to the facts of thisThe Appellate Tribunal has given two reasons for its conclusions. The first reason is that the appellant was doing business in the main on wholesaler basis and there should have been no difficulty in tallying quantities in respect of major items of trading account. This certainly is a relevant consideration. In the absence of such a tally, the next reason given is that the fall in the margin is all the more difficult to explain in view of the fact that the appellant also had a quota of imports worth about Rs. 8, 00, 000 which would have given them a handsome margin of profit. This again is a relevant fact and it isthat imported goods fetch a very handsome margin of profit. Accordingly, we hold that there is material in support of the impugned finding of the Appellate TribunalWe may point out that we are not concerned with the correctness of the conclusion and we are only concerned with the question whether there is any material in support of the finding of the Appellate Tribunal. In cases involving the applicability of the proviso to section 13, the question to be determined by theOfficer is a question of fact, namely, whether the income, profits and gains can or cannot be properly deduced from the method of accounting regularly adopted by the assessee. There is nothing special about this question of fact, and generally the only question of law that can possibly arise is whether there is any material for the finding. In our opinion the High Court was right in refusing to call for a statement of the case