MOHAMMAD UMER Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN pursuance of a direction of this court under Section 256(2) of the INcome-tax Act, 1961 (hereinafter referred to as "the Act"), two questions of law have been referred for the opinion of this court by the INcome-tax Appellate Tribunal, Patna Bench. They are as follows :

(2.) THE short facts relevant for the disposal of this reference may be summed up thus. THE assessee is an individual who derives income from the sale of country liquor. THE assessment year with which we are concerned in this reference is 1966-67, for which the assessee filed a return showing a total turnover on account of the sales in the course of the year in question at Rs. 12,90,678 and a net profit of Rs. 22,218, which came to about 1.75 per cent. THE books of account were duly produced by the assessee and his representative, and the Income-tax Officer found, on examination of the account books, three defects relating thereto : (1) that the sales were not verifiable in the absence of cash memos, (2) that they were noted in lump sums, and (3) that the drawings of personal expenses shown by the assessee during the year at Rs. 3,176 seemed to be inadequate. THE Income-tax Officer further held that the assessee had no agricultural income. In these circumstances, the book profits shown by the assessee were not accepted and his sales were estimated at Rs. 12,95,000, and a flat rate of 2'5 per cent. on net profit of Rs. 29,875 was assessed, A copy of the order of the Income-tax Officer has been marked annexure "A" to the statement of the case. THE assessee preferred an appeal before the Appellate Assistant Commissioner who also held that for the reasons discussed in the assessment order, the "book profits" shown could not be accepted as correct. A copy of the appellate order forms part of the statement of the case as annexure "B". THE assessee having preferred a second appeal to the Tribunal contended that the rejection of the book results of the assessee and estimation of profit by resorting to the proviso to Section 145(1) of the Act was wholly unwarranted, both on the facts and in the circumstances of the case as well as in law. It was urged on behalf of the assessee that the sales were verifiable, inasmuch as complete data regarding purchases, sales, opening and closing stocks were available. THE sale price of country liquor was fixed by the excise department of the Government, and the sales could not, therefore, be more than what had been shown by the assessee. It was further contended that the sale of the quantity of liquor as furnished by the assessee could be further verified with reference to the purchase and the stock at the moment as the commodity was rationalised by the excise authorities. None of the arguments on behalf of the assessee, however, found favour with the Tribunal which referred to the assessee's appeal in respect of the previous year and held that the defects as pointed out in the earlier year still being there, the revenue authorities were well justified in rejecting the "books results" and estimating the net profits as well as in enhancing the flat rate. THE assessee's appeal was accordingly dismissed.

(3.) FOR the reasons stated above, I must answer both the questions in favour of the assessee and against the department and hold that on the facts and in the circumstances of the case the finding of the Tribunal upholding the rejection of the book profit shown by the assessee was vitiated by reason of its reliance upon suspicion, surmises as also irrelevant material. I also hold in the circumstances of the case that the finding given by the Tribunal that the sales made by the assessee during the relevant year were unverifiable is not based on the materials on record and is an arbitrary finding. The assessee will be entitled to the costs of this reference.