SOHANLAL G SANGHI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference made under S. 66(2) of the Indian IT Act, 1922, by the ITAT, Bombay, in pursuance of an order passed by this Court in Misc. Civil Case No. 286 of 1966, decided on 23rd Sept., 1968.

(2.) THE assessment year in question is 1958 -59, the previous year being the financial year which ended on 31st March, 1958. The dispute pertains to the assessee's income in the previous year from various sources including the business run in the name Rewa Transport Services, Rewa. From this head the assessee showed receipts at Rs. 3,23,053. The ITO did not accept these receipts of the transport income shown in the assessee's account books. He thought that the figure shown by the assessee as his earnings from the transport business against mileage of Rs. 3,86,878 was very low as compared to the receipts shown by the assessee himself in earlier years and the mileage covered by the assessee in those years. It was also observed that the receipts shown in the account books of the assessee were not verifiable as the assessee had not maintained counter -foils of the tickets issued in the previous year and in the daily collection sheets maintained by the assessee some 15 tickets issued by him had not been accounted for and the practice admittedly has been that one ticket could be issued to a group of persons. On this reasoning, the ITO found that the correct position of income and profit could not be assessed from these accounts. He, therefore, applied the proviso to S. 13 of the Indian IT Act (hereinafter referred to as "the Act") and proceeded to compute the assessee's income from the transport business and determining by that process he found that Rs. 1,00,000 should be added to the receipts shown by the assessee. The ITO adopted the method of determining the assessee's income from the transport business on the basis of mileage covered and taking the average seating capacity of the bus to be 35 he found the optimum receipts on the basis of the rate of 7 pies per mile. In this manner, he calculated the optimum receipts for the passenger fare alone to be Rs. 4,93,674. According to the ITO, the luggage receipts would be in addition to this and, therefore, he calculated the optimum receipts at the round figure of Rs. 50,000 and then allowing a ten per cent margin he found that the total receipts would come to Rs. 4,50,000 whereas the receipts shown by the account books of the assessee were Rs. 3,23,053. Thus, he found that Rs. 1,26,947 were shown less. He, therefore, added a round figure of Rs. 1,00,000 to the receipts shown.

(3.) LEARNED counsel appearing for the assessee at length contended that there is no finding given by the ITO and maintained by the Appellate Tribunal that the income, profits and gains cannot be properly deduced from the method of accounting adopted by the assessee and in the absence of such a clear finding by the taxing authorities, the proviso to S. 13 of the Act could not be attracted. It was also contended that the only defect found in the accounts maintained by the assessee was that some 15 tickets during the course of the whole year were not accounted for in the collection sheets on the basis of which the accounts and total receipts of the assessee are ascertained. He, therefore, contended that this was not sufficient material on the basis of which the ITO and the authorities in appeal could hold that a true position of profits and income could not be deduced from the accounts maintained by the assessee and, therefore, according to learned counsel, there was no material on the basis of which the proviso to S. 13 of the Act was applied. Learned counsel contended that in the assessments of the previous year and the subsequent years the daily collection sheets have been accepted and at no point of time was the assessee called upon to produce the counterfoils of tickets and in that event not maintaining the counterfoils could not be made a ground to infer that the collections could not be verified. Learned counsel at length stated the method of accounting maintained by the assessee. According to him the assessee resides at Indore and his business was carried on at Rewa by the officers of the assessee and the regular system followed at Rewa was that every day when the vehicle returned on the return trip a collection sheet was prepared showing the ticket numbers which were issued, and the passengers taken on those tickets and the collections on the basis of those tickets. And on the basis of these daily collection sheets, according to learned counsel, the statement of account was prepared and on that basis the receipts have been shown in the account books of the assessee. In such a system of maintaining accounts, according to learned counsel, maintenance of counterfoils of the tickets was not necessary and according to learned counsel it was the practice not to maintain the counterfoils of tickets and at no point of time did the IT authorities demand production of these counterfoils, except for the present assessment year. Under these circumstances, it was contended that non -production of counterfoils, as they were not maintained, should not be considered as a circumstance against the assessee. It was also contended by learned counsel that the accounts were audited as the assessee resided at Indore and he wanted to keep a check on the officers managing the business at Rewa, and once accounts have been audited it was not necessary for him to maintain the counterfoils of the tickets. He, however, contended that audit was not necessary as it was a private business of the assessee, but still, the accounts having been audited there was no reason for the ITO to come to the conclusion that from these accounts maintained by the assessee the true position of profit and income could not be ascertained.