HARSAHAIMAL PHULCHAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee Harsahaimal Phulchand is a Hindu undivided family, which deals in yarn and groceries on a large scale. THE assessment which is in dispute in the present case is for the chargeable accounting period of Samvat year 1999. For this chargeable accounting period the Excess Profits Tax Officer determined that the profit from business was Rs. 92,761. Under Section 6 of the Excess Profits Tax Act the assessee did not select any standard period. Hence under Section 6(4) the Excess Profits Tax Officer applied the minimum standard profit of Rs. 36,000 in the case of the assessee. THE chargeable accounting period was 11 and 21/31 months and so the standard profit was computed to be Rs. 35,032 under Sections 4 and 6 of the Excess Profits Tax Act. THE net profit chargeable was therefore Rs. 57,729. But under Section 7 the assessee is entitled to relief on account of deficiency of profits occurring in the previous chargeable accounting periods. THEre were four such chargeable accounting periods, viz., 1st September 1939 to 10th November 1939 (part of Samvat year 1995), 11th November 1939 to 30th October 1940 (Samvat year 1998), 30th October 1940 to 19th October 1941 (Samvat year 1997) and 20th October 1941 to 8th November 1942 (Samvat year 1998). No assessment for excess profits tax was made for these four chargeable accounting periods but the Excess Profits Tax Officer computed the profit from business for these four periods and after deducting the standard profits for the respective periods he arrived at the deficiency for each chargeable accounting period. In this manner he determined that the not deficiency liable to be deducted under Section 7 for the Samvat year 1999 was Rs. 56,326. THE net excess profit for Samvat year 1999 was therefore computed to be Rs. 1403, upon which the tax payable was Rs. 935/5/-. In calculating the relief to be given under Section 7, the Excess Profits Tax Officer computed the profit for the first three chargeable accounting periods according to the amount calculated for the corresponding Income-tax assessments. For the fourth accounting period, viz., Samvat year 1998, the Excess Profits Tax Officer did not accept the profit determined for the purpose of Income-tax assessment. He discovered that the amount of Rs. 18,000 together with interest of Rs. 430 had been credited in the books of the assessee but there was no satisfactory explanation for this item. Accordingly the Excess Profits Tax Officer treated the amount of Rs. 18,430 as secreted profits and added it to the amount of the Income-tax assessment. An objection was raised by the assessee that the amount of Rs. 18,430 ought not to have been added as secreted profit for the Samvat year 1998. THE objection was rejected by the taxing authorities. At the instance of the assessee the Income-tax Appellate Tribunal has framed the following question of law.

(2.) THE main argument on behalf of the assessee is that in making computation of profits for the four chargeable accounting periods it was not open to the Excess Profits Tax Officer to travel beyond the assessment made by the Income-tax Officer for the corresponding periods. It was contended by Mr. R. J. Bahadur that even if the Excess Profits Tax Officer discovered that a particular item of each credit was not explained or even if there was evidence that the amount was secreted profits it was not open to the Excess Profits Tax Officer to differ from the amount of income-tax assessment or to add the amount of secreted profits found for the purpose of assessing excess profits tax. THE proposition put forward by the learned counsel is that the amount of assessment made for the purpose of income-tax must be the basis of assessment for the purpose of charging excess profits tax and the law does not permit that there should be a deviation in the 'quantum' of the assessable amount for the purpose either of income-tax or excess profits tax. THE argument is based upon Rule 1 of Schedule I of the Excess Profits Tax Act which states that