S. Ahmed Khabeer Rowther vs Commissioner of Income Tax

Ismail, J.—By these two petitions u/s 256(2) of the Income Tax Act, 1961, the assessee requests the court to direct the Tribunal to refer the

following questions of law for the opinion of this court:

Whether it was competent for the Tribunal to give a finding as to the rate of gross profit and whether there is material for holding that Rs.

46,500 was the suppressed profits of the business of the previous year relevant for the assessment year 1961-62 ?

Whether the peak credit of Rs. 46,500 should be treated as having come out of the intangible addition of Rs. 53,000 made in the earlier year''s

assessment ?

The short facts that give rise to these questions are as follows :

The petitioner herein is a dealer in paddy and rice having his head office at Coimbatore and branches at Singarampalayam and Palghat. For the

assessment year 1961-62, the turnover was Rs. 13,87,087 and the gross profit shown by the assessee was less than 2%. The Income Tax Officer

found that the gross profits disclosed by the assessee was prima facie low, having regard to the nature of the business and the trading conditions

and that the books were absolutely unreliable. He pointed out that the books of accounts were generally defective with erasures, overwritings and

interpolations. He also found that in the books of accounts there were cash deposits to the extent of Rs. 84,000 and the peak deposit was Rs.

46,500. Consequently, for the purpose of arriving at the real gross profit, he added this peak credit of Rs. 46,500 to the income under the head

Business"" returned by the assessee, and completed the assessment.

The petitioner preferred an appeal to the Appellate Assistant Commissioner, and before that officer, he tried to prove the truth and genuineness

of the cash credits by bringing in various persons in whose names the credits stood and obtaining letters from them to show that those persons had

advanced the money to the petitioner herein. The Appellate Assistant Commissioner rejected the truth and genuineness of these cash credits and

was of the opinion that the peak credit should be taken into account as the income of the petitioner from the business in the course of the year.

However, he was of the view that in the previous year 1960-61, the assessee had declared a loss of Rs. 43,591, but the Income Tax Officer

added a sum of Rs. 53,000 and after so adding that amount, he assessed the net income of Rs. 10,000 and, consequently, the addition of Rs.

53,000 made by the Income Tax Officer in the previous year was available to the assessee to explain the peak credit of Rs. 46,500.

Notwithstanding this, he himself estimated the gross profit at 3''5% on sales of Rs. 14,00,000 and added Rs. 24,210 to the income returned by the

assessee. Against this order of the Appellate Assistant Commissioner, the department as well as the assessee preferred appeals. The assessee

wanted to have this addition of Rs. 24,210 deleted, and the department wanted to have the addition of Rs. 46,500 restored. The Tribunal by its

final order dismissed the appeal preferred by the assessee-petitioner and allowed the appeal preferred by the department. It is the correctness of

this decision of the Tribunal which is sought to be challenged in the form of the questions referred to above.

The learned counsel for the petitioner contends that the decision of this court in S. Kuppuswami Mudaliar Vs. Commissioner of Income Tax,

Madras, is directly in point in favour of the petitioner and the Tribunal was not justified in distinguishing the same. We are of the opinion that there

is no merit in this contention of the learned counsel. In S. Kuppuswami Mudaliar Vs. Commissioner of Income Tax, Madras, the facts were

entirely different. For the assessment years 1947-48 and 1948-49, the Income Tax Officer added a sum of Rs. 52,230 to the trading profits. The

officer subsequently found that the assessee had advanced on a loan a sum of Rs. 40,000 in August, 1948, and his wife and married daughter had

contributed Rs. 15,000 and Rs. 10,000, respectively, as capital to a firm in February, 1950. The Income Tax Officer added these amounts of Rs.

40,000 and Rs. 25,000 as undisclosed income of the assessee for 1949-50 and 1950-51 respectively. The assessee contended before the Income

Tax Officer that this loan as well as the investment came out of the sum of Rs. 52,230 added by the Income Tax Officer in the assessment years

1947-48 and 1948-49. This court, in that decision, held that the amounts which the Income Tax Officer had added to the income of 1947-48 and

1948-49 on an estimate must be treated as real income and the Tribunal was not justified in holding that the sum of Rs. 40,000 and Rs. 12,230

constituted income of the assessee from undisclosed sources. It has to be mentioned that from the very beginning the case of the assessee was that

the loans and investments came to be made out of the income in the previous years. In addition, the loans and investments were made in the names

of himself and his wife and his married daughter. It is in that background this court held that the Income Tax Officer and the Tribunal should have

held that the loans and investments came out of the income of Rs. 52,230. In the present case, the facts are entirely different, and certainly differ

from the reported case in two principal points. One is that, in the reported case, the entire sum of Rs. 52,230 made by way of addition was

available for advancing as loan and investment. In the present case, the assessee for the year 1960-61 had returned a loss of Rs. 43,591 and the

Income Tax Officer added to the gross profits a sum of Rs. 53,000 and assessed only a sum of Rs. 10,000 as business income. Consequently, the

entire sum of Rs. 53,000 cannot be said to have been available with the petitioner for explaining the credits in question. Secondly, in the present

case, it was never the case of the assessee-petitioner that the addition of Rs. 53,000 made in the assessment year 1960-61 was made use of in

making the deposits in the books of the assessee in the year in question. His positive case was that they were borrowing from third parties and he

has disclosed their names, and made them come before the Appellate Assistant Commissioner and assert that they had advanced those loans.

Once the assessee had set up such a case and has miserably failed to establish that case, it was not thereafter open to him to rely upon the decision

in S. Kuppuswami Mudaliar Vs. Commissioner of Income Tax, Madras, and merely advance the contention that the Income Tax Officer should

have treated these credits as having come out of the addition of Rs. 53,000 made in the year 1960-61. On these two vital matters, the reported

decision differs basically from the facts of this case, and, therefore, the Tribunal was justified in not applying that decision to the facts of this case.

Under these circumstances, we have no hesitation in holding that the conclusion of the Tribunal is one on a question of fact, having regard to the

circumstances of the particular case, and no question of law can be said to arise out of the said decision of the Tribunal.

Accordingly, these petitions are dismissed. The Commissioner of Income Tax is entitled to the costs of these petitions (one set). Counsel''s fee is

axed at Rs. 250.