C ARUMUGASWAMI NADAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) TWO questions have been referred to us under section 66(2) of the Income Tax Act, 1922

(2.) IF the answer to question No. 1 is in favour of the assessee, whether on the facts and in the circumstances of the case, there are materials to justify the rejection of the book results and to invoke the proviso to section 13 of the Income-tax Act " " * The assessment years in question are 1947-48, the accounting year for which is the calendar year 1946, and 1949-50, the relevant calendar year being 1948. In respect of the assessment year 1947-48, an assessment was originally made on August 2, 1948, and the net income of Rs. 32, 433, returned in respect of the match manufacturing business of the assessee was accepted. Subsequently in 1953, proceedings were initiated under section 34 of the Act. The Income-tax Officer concluded as a result of these proceedings that there was an escape of the assessee's income from assessment, principally on the basis that the consumption of chlorate for the manufacture of matches was excessive. In coming to the conclusion, he relied upon the decision of the Appellate Tribunal in the appellate proceedings relating to the assessment for the year 1948-49 wherein the Appellate Tribunal had held that a consumption of 15 pounds per 100 gross match boxes was reasonable. The Income-tax Officer thought that the accounts were defective in that the issues of chlorate could not be correlated to the production of matches and that the average consumption varied from month to month. It may be mentioned here that what set afoot the proceedings under section 34 was the suspicion that a certain quantity of potassium chlorate had been consigned by the assessee to Pattukottai. It was apparently suspected that this chemical was being diverted for other uses. It is not necessary to go further into this matter except to point out that in appeal the Assistant Commissioner decided that the charge that the appellant was diverting the chlorate to other uses was not established. The Income-tax Officer, however, added a sum of Rs. 12, 000 to the income for this assessment year.

(3.) THE calendar year 1947 is not the subject matter of this reference and has been included for the purpose of facilitating comparison of the average consumption in the different years. THE learned counsel for the assessee has pointed out that the average worked out for the calendar year 1946, which is given as 25.50 in the statement, is incorrect and that the correct figure is only 19.40 pounds per 100 gross matches for that year. THE mistake arose for the reason that in taking the total amount of chlorate consumed for the year, due credit was not given to the closing balance on hand. This defect is pointed out in the appellate order of the Assistant Commissioner. On so reworking the rate of consumption, it is seen that the average for this year is only 19.40 pounds. This is conceded by the learned counsel for the Department. It is clear, therefore, that the average consumption for these three years which are 19.40, 18.70 and 20.80 are not very much at variance with each other and that solely from these figures no inference of excessive consumption could be drawnTHE reason, however, for holding that addition to the returned income was called for appears from the statement of the case to be that the assessee was maintaining a daily mixture account in the absence of which the correlation of the issues of the chemical with the production could not be established. It was " in the absence of such important record " that the Tribunal proceeded to hold that the proviso to section 13 was attracted. This reasoning is strangely at variance with the observations of the Tribunal in its appellate order. THEre the Tribunal observed