COMMISSIONER OF INCOME TAX Vs. SOMNATH OIL MILLS

JUDGEMENT

(1.) THE Tribunal, Ahmedabad Bench "B", Ahmedabad, has referred the following questions under s. 256(2) of the IT Act, 1961 (hereinafter referred to as "the Act") for our opinion :

(2.) THE aforesaid questions arise in the background of the facts : The assessee M/s Somnath Oil Mill, Veraval, which is a registered firm, carries on business of running an oil mill. On 6th Jan., 1972 the Sales tax authorities conducted a raid in the premises of the assessee and during search seized number of documents. Thereafter in the assessment proceedings for accounting year 1970 71, the ITO took cognizance of the documents seized by the Sales tax authorities and found that the assessee had not recorded the purchases of groundnut to the tune of Rs. 5,97,107. The ITO called upon the assessee to explain the unaccounted purchases recorded in the exercise book and diary seized from the assessee. The explanation of the assessee was not accepted by the ITO. He further found some entries relating to expenses and sales of oil and oil cakes. Finally, the ITO held that the assessee has failed to establish the source of purchase of groundnut to the tune of Rs. 5,97,107 and, therefore, he treated the said amount as unexplained investment and brought to tax the said amount as income from undisclosed sources. Thereafter he worked out the profit on suppressed production of Rs. 60,188 by estimating the oil production and oil cakes. However, as he had made addition in respect of income from undisclosed sources, he did not make separate addition of Rs. 60,188 in the income. Against that order, the assessee preferred an appeal before the AAC. The AAC, after receiving the report from the ITO, arrived at the conclusion that Rs. 35,220 should be treated as the assessee's income from the undisclosed sources as against Rs. 5,97,107 determined by the ITO. In respect of the profits on unaccounted transactions of oil and oil cakes, the AAC came to the conclusion that the suppressed profits could be worked out at Rs. 50,000. He, accordingly, enhanced the business income by Rs. 50,000. Against that order, the assessee preferred Appeal ITA No. 1077/Ahd/74 75 before the Tribunal, Ahmedabad. The Tribunal by its judgment and order dt. 29th Nov., 1975, partly allowed the appeal. While allowing the appeal, the Tribunal rejected the contention that the addition of Rs. 35,220 as income from the undisclosed sources was not justified. With regard to the addition of Rs. 50,000 in respect of the profits from the sale of oil and oil cakes, the Tribunal partly allowed the appeal. The Tribunal rejected the contention of the learned counsel of the assessee by holding that there was no reason to depart from the margin of profit and as such the rate of gross profit as adopted by the AAC at 7.5% net was excessive. Dealing with the contention that the assessee was required to pay sales tax of Rs. 38,000 determined by the Sales tax authorities on the undisclosed sales and, therefore, that liability should be allowed as deduction in computing the assessee's profits arising out of unrecorded sales of oil and oil cakes, the Tribunal negatived it. The relevant findings are as under :

(3.) IN the result, the questions are answered in the negative, that is, in favour of the Revenue and against the assessee.