HIRALAL DEWAN CHAND Vs. INCOME-TAX OFFICER

JUDGEMENT

(1.) THE petitioner-firm is registered under the Partnership Act and the Income-tax Act, 1961 (hereinafter called "the Act" ). The firm's accounting year was from April 13, 1964, to April 1, 1965, which corresponded to the assessment year 1965-66. For that assessment year, the petitioner-firm returned an income of Rs. 2,02,229, and in support thereof produced its account books which showed its sales of shawls for that year at Rs. 15,77,570, yielding a gross profit of Rs. 2,16,502. The rate of profit worked out to 13. 7 per cent. as against 13. 4 per cent. for the preceding year. The Income-tax Officer noted that the sales had gone down as compared with the previous years but that the petitioner-firm had made much larger profit in the sale of wool-tops. The sale turn-over of wool-tops amounted to Rs. 2,05,927 on which the gross profit shown was Rs. 64,614. The Income-tax Officer accepted the trading accounts of the petitioner-firm after examining its books and did not doubt that the profits from the sale of wool-tops had been under-stated. The assessment order was made on August 31, 1966.

(2.) ON January 2, 1969, the Inspecting Assistant Commissioner, Jamnagar, addressed a letter to the Inspecting Assistant Commissioner of Income-tax, Amritsar, and enclosed therewith a report of the Income-tax Officer, Jam-nagar, who was processing the assessment of Messrs. Digvijay Woollen Mills, Jamnagar, and in that connection made investigations into the purchases made by it. The said Income-tax Officer had gone to Amritsar in connec-tion with the investigation to examine certain parties and found that eleven bales of wool-tops imported under the licence of the petitioner-firm were sold by Tara Chand Dwarka Dass to Digvijay Woollen Mills on March 31, 1965. The Inspecting Assistant Commissioner of Amritsar was requested to make enquiries into the matter as it had come to the notice of the Income-tax Officer, Jamnagar, that the importers of wool-tops were indulging in concealment of their real profits by introducing bogus intermediaries for selling the wool-tops to the woollen mills. On January 27' 1969, the Inspecting Assistant Commissioner of Amritsar forwarded that letter along with the report of the Income-tax Officer, Jamnagar, to the Income-tax Officer, Amritsar, in charge of the assessment of the petitioner-firm to make further enquiries and take necessary action under the Act. The Income-tax Officer held enquiries into the matter and came to the conclusion that the petitioner-firm had reduced its profits on the sale of wool-tops by introducing bogus intermediaries. After examining the accounts of the petitioner-firm and those of Messrs. Tara Chand Dwarka Dass, the Income-tax Officer recorded the following reasons for initiating proceedings under Section 147 of the Act against the petitioner-firm on November 14, 1969:

(3.) THE reason for the belief of the Income-tax Officer that considerable high profits had been made but nominal profits had been shown in the account books by manipulation was based on the fact that Messrs. Tara Chand Dwarka Dass had sold the very same 11 bales of wool-tops at Rs. 18. 37 per pound to Digvijay Woollen Mills on March 31, 1965, which the petitioner-firm sold at Rs. 9'50 per pound to Ramesh Woollen Mills on March 16, 1965.