COMMISSIONER OF INCOME TAX MADRAS Vs. S NELLIAPPAN

JUDGEMENT

(1.) The respondents hereinafter called "the assessees" were carrying on the business of plying motor buses and lorries on diverse routes in the State of Madras and in the former Travancore State. In proceedings for assessment to income-tax for the years 1946-47 and 1947-48 and for excess profits tax for the accounting periods August 17, 1944, to August 16, 1945, and August 17, 1945 to March 31, 1946, the assessing officer rejected the books of account maintained by the assessees and made several additions to the profits disclosed by them and brought the profits so computed to income-tax and excess profits tax. The orders of the assessing officer were confirmed by the Appellate Assistant Commissioner. The Appellate Tribunal dismissed the appeals against those orders observing that the final computation of the profits made by the Income-tax Officer gave an average rate very much less than Rs. 4,000 per vehicle, and that the final assessments at rates less than the rates "uniformly followed in other bus and lorry cases could not be said to be excessive or unreasonable". The Tribunal declined to deal with the contentions raised in the appeal about the individual items since in their view those contentions had "a direct bearing on this final quantum" and the assessees had failed to discharge "The primary onus" on them "to show that the overall quantum is excessive". The Tribunal submitted a statement of the case under section 66(2) of the Income Tax Act to the High Court of Madras and referred the question whether the Tribunal was justified in estimating the income of the assessees and refusing to consider the contentions put forward by them. The High Court held that the Tribunal was bound to determine whether the purchase price of charcoal and the estimate of gross receipts by the Appellate Assistant Commissioner were excessive, and that the Tribunal should, instead of determining whether the gross amount of the estimated income was excessive, have determined the contention raised by the assessees individually. Counsel for the assessees urged before the High Court that when specific additions were made in the total profits on the grounds of "Suppressed income and inflated expenditure" the Appellate Assistant Commissioner could not add other items under the head "Unexplained cash credits". The High Court declined to pronounce their opinion on that contention, and observed that it would be open to the Tribunal to consider that contention in deciding what should be the assessee in the relevant years. The High Court answered the question referred in favour of the assessees and observed that the "appeals will have to be disposed of afresh and in accordance with the law by the Tribunal".

(2.) At the hearing before the Tribunal pursuant to the order of the High Court, counsel for the assessees abandoned the contentions "relating to the amount adjusted in the computation of profits under the heads of operating expenses and additions for low collections and urged that cash credit of Rs. 19,796 for the assessment year 1946-47 and Rs. 32,700 for the assessment year 1947-48 should be deleted. The members of the Tribunal held that they had examined the ledger accounts of the assessee and that the credits remaining outstanding till the end of the previous year relating to the assessment year 1947-48and the explanation furnished by the assessees was unconvincing and that the cash credits deserved to be treated as the income of the assessees in the respective years in which they has been brought into the books of the business in fictitious names. But, the Tribunal observed, since in each of the two years under appeal additions to the book profits had been accepted in excess of the amounts of cash credits additions of these credits had become amend the assessments and adjust the tax liability.

(3.) The Commissioner of Income-tax thereafter applied to the Tribunal to state a case on the following two questions for the year 1946-47 :