INCOME TAX OFFICER Vs. SAWAN MAL

JUDGEMENT

(1.) THE ITO, A-Ward (now Distt. 1(2), Ludhiana, filed a complaint under Section 277 of the I.T. Act, 1961 (hereinafter called as "the Act"), and Sections 193, 196, 420 and 511 of the Indian Penal Code, pertaining to the assessment year 1965-66, in the court of the Judicial Magistrate at Ludhiana, against the respondents, who are partners of M/s. Variety Hosiery Mills, Ludhiana. However, they were acquitted by the Trial Magistrate, vide his order dated 24th May, 1980. Hence, this appeal by the ITO against their acquittal.

(2.) THE prosecution case as set up at the trial was that the respondents were partners of the firm, M/s. Variety Hosiery Mills, Ludhiana, in the financial year relevant to the assessment year 1965-66. Return of income for the assessment year 1965-66 was filed on behalf of M/s. Variety Hosiery Mills on 13th August, 1965, showing an income of Rs. 85,909, along with the statement of accounts like trading accounts (i.e., malkhata, wooltops account, woollen yarn account, colour account), profit and loss account and balance-sheets. This return was filed by Sawan Mal, partner, in the prescribed manner. Later on, the respondents filed details of colour and chemicals purchased, consumed and sold on 9th July, 1968, as Rs. 11,232.04, Rs. 6,124.04 and Rs. 5,097.60, respectively.

(3.) MR. Ashok Bhan, learned counsel for the appellants, urged that the concealment of income is on account of three items. First item is the disposal of the dyes/colours imported by the respondents against an import licence. In their books of account, the respondents-firm showed that the dyes had been sold to M/s. Dina Nath and Sons, Amritsar, on 24th February, 1965, for Rs. 5,098. M/s. Dina Nath and Sons sold these very goods to M/s. Ajay Textiles, Amritsar, for Rs. 8,150 and the latter, in turn, had shown these to have been sold to the Dhariwal Mills for Rs. 8,255. The second allegation against the respondents is that they did not show the purchase of imported dyes and colours worth Rs. 4,530. It was explained that this was used in the manufacture of cotton hosiery goods. The third item is regarding the sale of wooltops weighing 12,322 lbs. to M/s. Asha Wool Trading Co., Panipat, at the rate of Rs. 6.50 on 11th August, 1964, for Rs. 80,093. The argument of MR. Ashok Bhan is that the assessee-firm had entered business transactions with third parties with whom it had no affinity other than business at the rate merely half of the prevailing rate in the market and, thus, apparently goods worth Rs. 8,255 were shown as sold to M/s. Dina Nath and Sons on 24th February, 1965, for Rs. 5,098 and similarly wooltops imported from Australia were shown to have been sold to the Panipat firm, vide Bill No. 20, dated 11th August, 1964, for Rs. 80,093 thus yielding the rate of Rs. 6.50 per lb. and nearly a week earlier to that the Panipat firm apparently stipulated to sell the same commodity at Rs. 13.70 per lb. and that these basic facts point towards the transaction of the intermediaries being collusive and with a view to suppressing profits and that the findings of the learned Trial Magistrate are erroneous.