M. P. Philip v. The Commissioner Of Income Tax — 1958 DIGILAW 99 (KER)

JUDGMENT Vaidialingam, J. 1. In accordance with the directions issued by this Court under section 66 (2) of the Indian Income-Tax Act, the Appellate Tribunal has stated a case and referred the following question for decision by this Court: " Whether in the circumstances of the case the Tribunal was justified in holding that the proviso to section 13 of the Act was attracted." 2. The learned counsel, Mr. M. U. Isaac, who was appearing in both the references for the respective assessees, has stated that the points involved are the same and that our decision in one matter will conclude the other also. 3. Therefore, we do not propose to go into great detail into the various orders of the several authorities in respect of both these matters and we will take only the orders passed in I.T.R. 13/57 for the purpose of answering the references. 4. In I.T.R. 13/57, the assessee was carrying on a cocoanut oil mill under the name and style of' P. M. Mills'. There were two assessments on the said assessee, one for the year of assessment 1951-52 and the other for the year of assessment 1952-53. For both these years of assessment, the Income-Tax Officer passed orders directing the adding back of certain amounts on the ground that the driage claimed was excessive. It will be seen from a perusal of the orders that the assessee purchases copra and crushes the same into cocoanut oil. According to the particulars filed by the assessee, he claimed driage on the copra purchased which approximately worked out to 7 per cent. But on a consideration of the previous claims made by the assessee and also having due regard to the claims made by the similar dealers in other cases at Mavelikara, the Income-Tax Officer was prepared to allow only the maximum driage of 4 per cent. The difference was directed to be added back to the gross profit and assessments were made. 5. There was an appeal against the two assessment orders by the assessee to the Appellate Assistant Commissioner of Income-Tax, Trivandrum. The appellate authority agreed with the view of the Income-Tax Officer that the percentage of driage claimed was unduly high and further agreed with the Income-Tax Officer that the driage was not arrived at on any actual data but only on the basis of an estimate. The appellate authority agreed with the view of the Income-Tax Officer that the percentage of driage claimed was unduly high and further agreed with the Income-Tax Officer that the driage was not arrived at on any actual data but only on the basis of an estimate. As stated earlier, the Appellate Authority agreed with the Income-Tax Officer that the estimate was very high. Ultimately, the Appellate Authority upheld the order of the Income-Tax Officer and dismissed both the appeals. 6. The assessee further took up the matter before the Income-Tax Appellate Tribunal by filing two appeals against the two orders of assessment. The Appellate Tribunal also was of the view that the records maintained by the assessee were based more or less on estimates and the driage claimed cannot be allowed to the extent desired by the assessee and in this view, the Tribunal held that the proviso to section 13 of the Act applied and ultimately, with slight modifications in the percentage of driage to be allowed, confirmed the orders of assessment otherwise substantially. 7. The assessee filed applications before the Appellate Tribunal under section 66 (1) requesting the Tribunal to refer certain questions of law to the High Court. But the Tribunal declined to refer any such question on the ground that no question of law arises for being referred to the High Court. As stated earlier, the Tribunal has now referred the question mentioned above on directions issued by this court under section 66 (2) of the Act. 8. The chief contention of Mr. Isaac, learned counsel for the assessee, is that in the circumstances of the case, the Tribunal was not justified in holding that the proviso to section 13 of the Act was attracted. In. effect, his contention is that the Department has rejected the accounts of the assessee and, therefore, they have no jurisdiction to invoke the proviso to section 13 and make assessments on their own basis. 9. On the other hand, Mr. G. Rama Iyer, learned counsel appearing for the Department, has contended that in the circumstances of the case, the Tribunal has acted within its jurisdiction in invoking the proviso to section 13 of the Act. 9. On the other hand, Mr. G. Rama Iyer, learned counsel appearing for the Department, has contended that in the circumstances of the case, the Tribunal has acted within its jurisdiction in invoking the proviso to section 13 of the Act. The learned counsel has also contended that it is not open to the assessee to raise this question because the assessee has already conceded before the Appellate Assistant Commissioner that the proviso to section 13 can be applied in the circumstances of the case. 10. Before dealing with the merits of the case, it is desirable to dispose of the contention of the counsel for the Department about the right of the assessee to raise this question. The contention of Mr. Rama Iyer is based upon the statement made in the order of the Appellate Assistant Commissioner of Income-Tax which is as follows: "It is conceded by the appellant's representative that theoretically in this case section 13 is applicable." 11. This is followed up by Mr. Rama Iyer by the statement contained in paragraph 7 of the statement of the case submitted to this Court by the Appellate Tribunal. In paragraph 7 it is stated as follows : "The assessee thereupon appealed to the Appellate Assistant Commissioner against both the aforesaid assessments. Though he raised a ground in both the appeals contending that his books must be accepted, in the course of arguments, he gave it up and conceded that the proviso to section 13 was applicable theoretically for the defects found by the Income-Tax Officer. The Appellate Assistant Commissioner dismissed both the appeals and sustained the additions". 12. On the other hand, Mr. Isaac contended that there is no question of concession especially when his client was all along agitating the applicability of the proviso to section 13 before all the Tribunals. We do not have before us sufficient materials from which we can dispose of these references on this technical ground of a concession stated to have been made by the assessee about the applicability of the proviso to section 13. The statement in the order of the Appellate Assistant Commissioner that it is conceded by the assessee's representative that section 13 is applicable, leads us nowhere. There is no record of a concession about the specific application of the proviso to section 13. The statement in the order of the Appellate Assistant Commissioner that it is conceded by the assessee's representative that section 13 is applicable, leads us nowhere. There is no record of a concession about the specific application of the proviso to section 13. If there has been such a concession, the appeal could have been disposed of by the Appellate Assistant Commissioner very shortly on this ground. Further, even the orders of the Appellate Tribunal do not show that the appeals were disposed of on the ground of any such concession. In fact, the orders clearly show that the Appellate Tribunal considered the merits of the contention and then came to the conclusion about the applicability of the proviso to section 13. Added to all these, the Appellate Tribunal itself does not make any reference to this concession when it disposed of the applications under section 66 (1) of the Act. In view of all these circumstances, we are not satisfied that there could have been a concession made by the assessee in the manner stated by the Appellate Tribunal in paragraph 7 of the statement of the case. Therefore, it follows that the assessee is entitled to raise this question before us in this reference. 13. Now coming to the merits of the case, it is the contention of Mr. Isaac that the orders of the Department clearly shows that they have rejected the accounts of the assessee. He further contended that it is nowhere stated in any of these orders that the method of accounting employed by the assessee is such that the income, profits and gains cannot properly be deduced therefrom. On a consideration of the various orders passed in both the references, we are not inclined to agree with the contention of Mr. Isaac. In our opinion, the orders clearly show that the Income-Tax Officer is of the opinion that the method of accounting employed by the assessees is such that the income, profits and gains cannot properly be deduced therefrom. The Income-Tax Officer has stated that the assessee has maintained a day-to-day stock register wherein weight particulars of copra purchased, copra sold and copra taken out for crushing are noted besides loss on account of driage. In the opinion of the said officer, the last item claimed on account of driage is only an estimated weight noted in the register. The Income-Tax Officer has stated that the assessee has maintained a day-to-day stock register wherein weight particulars of copra purchased, copra sold and copra taken out for crushing are noted besides loss on account of driage. In the opinion of the said officer, the last item claimed on account of driage is only an estimated weight noted in the register. The officer has considered the claims made by the assessee on this account in previous years. Apart from this, he has also considered the cases of other copra dealers at Mavelikara and has come to the conclusion that the percentage of driage varies from 2 to 4 per cent. Taking this as the basis, he allows for the assessees the maximum driage of 4 per cent. Regarding the excess claimed, the officer has directed it to be added back to the gross profits. The Appellate Assistant Commissioner has also stated that the only point that was argued before him was regarding this disallowance of the claim for full driage made by the assessee. He has also considered the fact that the driage claimed by the party was not on any actual basis, but only on an estimate which was very high. 14. Similarly, the Appellate Tribunal has held that the method of accounting, as evidenced by the books produced, was not acceptable and, therefore, the proviso to section 13 is applicable. The Tribunal further states that the reason for not accepting the method of accounting of the assessee is because the figures given therein are based on more or less estimates. Though some slight relief was given to the assessee, the Tribunal has substantially confirmed the orders of the Income-Tax Officer. 15. Mr. Rama Iyer, learned counsel for the Department, is well-founded in his contention that the Department acted within its jurisdiction in invoking the proviso to section 13. The driage claimed by the assessee was only on the basis of an estimate and not on actual facts. The percentage claimed by the assessee radically differed from the percentage claimed by him in the previous years and also from the percentage claimed by similar copra dealers. Therefore, it was open to the Department to accept the figures regarding the purchases but declined to grant to the assessee the full percentage of driage claimed by him. The percentage claimed by the assessee radically differed from the percentage claimed by him in the previous years and also from the percentage claimed by similar copra dealers. Therefore, it was open to the Department to accept the figures regarding the purchases but declined to grant to the assessee the full percentage of driage claimed by him. In the circumstances, the Income-Tax Officer was quite proper in coming to the conclusion that the method employed by the assessee is such from which the income, profits and gains cannot properly be deduced therefrom. 16. A reading of the orders of the Income-Tax Officer as confirmed by the Appellate Assistant Commissioner and the Income-Tax Appellate Tribunal shows that they were satisfied that it was not possible to properly deduce the income, profits and gains from the method of accounting employed by the assessee. Mr. Isaac cited certain decisions to the effect that when the account books are rejected, it is not open to the Income-Tax Officer to act under the proviso to section 13. It is not necessary for us to consider those decisions because we are satisfied that the two cases before us are not instances where the account books have been rejected in toto. The figures furnished by the assessees have been practically accepted but the claim for driage has not been accepted in full. In fact, even the adding up of the difference worked out by the Income-Tax Officer is really based upon the figures of purchases contained in the books produced by the assessee. 17. To conclude, in our opinion, in the circumstances of the case, the Tribunal was justified in holding that the proviso to section 13 of the Act was exacted. Our answer to the references is in the affirmative. The assessees in I.T.R. 13 and 14/57 will pay Rs. 50 each as costs to the Department.