The Punjab & Haryana High Court in the case of Jhandu Mal Tara Chand Rice Mills vs. the Commissioner Of Income Tax , 1969 73 ITR 192, held that an Assessing Officer can apply the proviso to Section 13 of the Income Tax Act, 1922 rejecting the accounts of the assessee if he fails to properly deduce his profits and gains.
Facts and circumstances of the case:
The assessee, Ms. Jhandu Mal Tara Chand, in the year 1958, relevant to the assessment year 1958-59 husked more than 70,000 maunds of paddy yielding about 45,000 maunds of rice.
The assessee-firm had machines for husking the paddy. During the previous years the yield of rice was nearly the same i.e. more than 60% which was accepted as the correct yield by the AO in those years. The method of maintaining accounts of the assessee was also not challenged by the AO in the previous years. At the time of assessment for the assessment year 1958-59, the AO noticed that the yield of rice shown by the assessee was on the low side, as such the AO called upon the assessee to prove that the yield of rice as declared by the assessee was correct.
The assessee stated that most of the paddy was purchased in the months of October to December and the products were highly moist during those times for which the yield was low. The other reason stated was that the paddy purchased was of inferior quality as compared with that of the other contemporary dealers. The assessee produced the paddy of other companies to substantiate his contention.
The assessee also furnished a certificate certifying that the assessee purchased 36,880 bags of paddy from 1.4.1957 to 31.3.1958, and total rice produced from the paddy was nearly 45,000 maunds. These facts had been verified from the rice stock register maintained by the assessee.
The AO applied the proviso to Section 13 of the Indian Income Tax Act, 1922 and after rejecting the accounts of the assessee determined the yield of rice. As a result the AO added Rs. 32,053 to the income of the assessee on account of the price of rice. The reason stated by the AO was that no daily dry age register had been maintained by the assessee-firm. The assessee had furnished a register called paddy register, where no measurements were provided in maunds.
According to the AO, it was not possible to verify the plea of the assessee there was excessive moisture and the quality of the paddy purchased by it without the presence of daily dry age register. The AO in his order stated that in another case where the nature of purchases and the months of purchases were the same as shown by the assessee-firm, the yield has been considered satisfactory by the Income Tax Appellate Tribunal, Delhi. The particulars of that case have not been mentioned. The AO found that the assessee purchased all qualities of paddy, both inferior and superior, but he has not noted the quantities of paddy of both the standards. The AO passed an order that the proviso to Section 13 of the Act could be applied in this case.
The assessee-firm preferred an appeal before the Appellate Assistant Commissioner of Income Tax against the order of the AO who agreed that the proviso to Section 13 of the Act could be rightly applied in this case.
The assessee-firm, being aggrieved with the order of the Appellate Assistant Commissioner of Income Tax, filed an appeal before the Income Tax Appellate Tribunal which was adjudicated by its Delhi Bench. The Income Tax Appellate Tribunal dismissed the appeal. The assessee-firm filed an appeal before the Punjab & Haryana High Court.
Findings of the High Court:
The High Court dismissed the appeal. It was held that the main reason why proviso to Section 13 was applied was that there was actually no check on the dry age claimed by the assessee. It was admitted that no such check was ever done. It was pointed out that there were no means to verify whether all the purchases were made for paddy sent for milling. For the above reasons the decision of the Appellate Assistant Commissioner that the proviso to Section 13 has been rightly applied was upheld.