VIJAYALAKSHMI LORRY SERVICE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, as well as the Department, the Tribunal referred the following questions of law for our opinion under section 256(1) of the Income-tax Act, 1961 Questions of law referred at the instance of the assessee"1. Whether, on the facts and in the circumstances of the case, the additions of Rs. 34, 692, Rs. 31, 826 and Rs. 11, 693 for the assessment years 1958-59, 1961-62 and 1962-63, respectively, on account of inflation of cotton purchase price was justified ?. 2. Whether, on the facts and in the circumstances of the case, the additions of Rs. 43, 420, Rs. 67, 518, Rs. 1, 22, 346, Rs. 61, 745 and Rs. 30, 989 on account of interest on borrowings for the assessment years 1958-59, 1959-60, 1961-62, 1962-63 and 1963-64, respectively, was justified ?. 3. Whether, on the facts and in the circumstances of the case, the addition of Rs. 4, 40, 000 to the total income in the assessment for the assessment year 1961-62 was justified?"

(2.) QUESTION of law referred at the instance of the Department".1. Whether, on the facts and in the circumstances of the case, the sums of Rs. 10, 000 and Rs. 5, 600 for the assessment years 1965-66 and 1966-67, respectively, could be allowed as deduction from the total income of the assessee ?" * In so far as question No. 1 referred at the instance of the assessee is concerned, it relates to inflation of the cotton purchase price in the assessment years 1958-59, 1961-62 and 1962-63.

(3.) THEREFORE, it was submitted that, by inflating the price of the cotton purchased, the real income attributable to the assesseecompany was suppressed. Thus learned standing counsel supported the additions made by the Tribunal under this head. In order to support his contentions, learned standing counsel relied upon the decisions in the case of Sri Ramalinga Choodambikai Mills Ltd. v. CIT and in the case of Asian Tool and Plastic Co. v. CIT.We have heard the rival submissionsFor the assessment years 1958-59, 1961-62 and 1962-63, the Incometax Officer made additions of Rs. 34, 692, Rs. 31, 826 and Rs. 11, 693, respectively, on account of inflation of the cotton purchase price. For the purpose of working out the profit and loss account of a business, it is necessary to take into account the actual expenses incurred. If such expenses are inflated deliberately to the knowledge of the assessee, then, the Income-tax Officer is entitled to disallow the inflated expenditure. If the account of the assessee-company reflect such irregularities committed by the directors, then the accounts of the assessee cannot be said to be a true account. In such a case, the Income-tax Officer is entitled to reject the entire books of account and work out the correct profit from the materials gathered by him. A company is a legal entity and it can act through its directors. The company can act only through the resolutions passed by the directors.