KIKABHAI ABDULALI RANGAWALA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred to us in this reference under S. 256(1) of the IT Act, 1961 (referred to hereinafter as "the said Act"), made at the instance of the CIT, is as follows:

(2.) THE relevant facts, somewhat summarised, are as follows: The assessment years with which we are concerned are asst. yrs. 1966 67 and 1967 68. The assessee is a registered firm carrying on business in hardware, cement sheets and so on. It filed its return of income for the asst. year 1966 67, declaring the income at Rs. 75,544. Along with this return, copies of cement trading account, personal, account of the partners, etc., were filed, but no balance sheet appeared, to have been filed along with the return of income. The hearing was adjourned from 13th June, 1967, to 24th June, 1967. On that day the scrutiny of books by the ITO revealed certain cash credits in some closed accounts, which the assessee was called upon to explain. Thereafter, some notices were issued by the ITO, which were not replied to. It is common ground that no satisfactory explanation was given at the said hearing regarding the cash credits. On 24th February, 1968, one of the partners of the assessee attended and filed a revised return showing an additional income of Rs. 60,000. In a statement accompanying the revised return the assessee admitted that there were some unvouched sales which were not accounted for in the books of account and which were shown as advances from certain parties and that these sales were disclosed in the revised return in the assessee's general trading account. What was submitted was that these unvouched sales were not properly disclosed in the books of account of the assessee by reason of the error of the accountant (Mehtaji), which explanation was rejected by the ITO. The ITO held that the undeclared sales should be treated as relating to the trading account other than the general trading account, that is, in the cement trading account, as he was of the view that these sales must be of cement. He, treated this amount as a revenue receipt in respect of trading other than in the general trading account. He initiated penalty proceedings as early as 24th February, 1968, on the ground that the assessee admitted concealment of income of Rs. 60,000 on the basis of the income shown in the revised return. These proceedings were initiated under S. 271(1)(c) of the said Act r/w S. 274 thereof. The notice was admittedly in the general form, on the ground that the assessee had concealed particulars of its income and deliberately furnished inaccurate particulars thereof. The ITO had also added an amount of Rs. 82,874 by estimating gross profits at 17 per cent in the general trading account.

(3.) THERE were appeals preferred by the assessee against these orders to the AAC. In respect of the asst. year 1966 67, the AAC took the view that the amount of Rs. 60,000 represented profit on account of suppressed sales in the general trading account and not in the cement trading account as held by the ITO. He, however, pointed out that as a separate addition by way of extra gross profit on an estimate had been made by him in the general trading account of the assessee, he did not further add the amount of Rs. 60,000 to the disclosed income of the assessee, and he deleted the addition made by the ITO. It may be mentioned here that the AAC held that the amount of sales in the general trading account should be adopted at Rs. 8,05,036 in the place of the disclosed sales of Rs. 7,80,678. The AAC also adopted the figure of 17 per cent as an estimate of the gross profits on the sales in the general trading account. As a result, in the place of the amount of Rs. 1,42,358 added by the ITO, he only added the amount of Rs. 84,358 to the disclosed income of the assessee. No appeal was preferred by either side against this order. As far as the asst. year 1967 68 is concerned, all that is material is that in place of Rs. 36,691 added by the ITO to the disclosed income of the assessee, the AAC only upheld addition of Rs. 13,349, being the amount of profits on the admittedly suppressed sales. There was an appeal against this order preferred by the Revenue to the Tribunal, but the same was dismissed.