Income Tax Appellate Tribunal - Madras
Taj Tanning Co. vs Income-Tax Officer on 29 September, 1989
Equivalent citations: [1990]32ITD302(MAD)
ORDER
George Cheriyan, Sr. Vice-President
1. This appeal is by the assessee and it relates to the assessment year 1979-80. The assessee carried on the business of tanning of skins and making sales of hides and skins. The turnover shown for the previous year ended 31-3-79 relevant to the assessment year 1979-80 was Rs.23,81,817 on which the gross-profit as disclosed came to Rs. 2,17,960 or 9.2%.
2. Initially the I.T.O. completed the assessment making an addition of Rs.1,75,000. He noticed that there were purchases from seven persons and the aggregate of the purchase value as shown from these 7 parties came to Rs.2,99,668. But there were certain over writings etc. and the aggregate value as originally recorded came only to Rs.1,59,668. There was thus a difference of Rs.1,40,000 which the I.T.O. by oversight took at Rs.1,30,000. The details of the difference of Rs.1,40,000 are as under: -
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Dt. of Name of party No. of Original Revised Inflation
entry in pieces figure figure
the books tanned after
erasure
Rs. Rs. Rs.
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26-4-78 Syed JaffarKhan, 1,000 23,000 43,000 20,000
Dharmapuri
12-7-78 Shaik Haroon, 1,641 38,153 68,153 30,000
Jolarpet
3-8-78 Majjed Ahmed, Ambur 1,000 24,000 44,000 20,000
20-7-78 Farooq Ahmed,
Jolarpet 1,154 25,103 55,103 30,000
16-8-78 Hyder Ali, Gudiatham 600 16,100 26,100 10,000
26-8-78 Ibadullah, Cuttack 800 15,504 35,504 20,000
8-9-78 M.Sultan, Jolarpet 632 17,808 27,808 10,000
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Total 1,40,000
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It was also seen that the assessee had borrowed amounts totalling to Rs.1,00,000 from M/s Universal Trading Co., M/s Harris Faiz & Co., and M/s Mudasser Leather Co.
3. The I.T.O. also made a separate addition of Rs. 45,000 out of sales-tax account on the ground that the corresponding sales-tax liability did not pertain to the accounting year.
4. The assessee contested the aggregate addition of Rs.1,75,000 before the C.I.T.(A). This appeal was decided by the C.I.T.(A) by his order dt. 23-5-83. The C.I.T.(A) referred to the inflation noticed of Rs.1,40,000. He noticed that the assessee had purchased hides and skins to the extent of Rs.90,785 from three parties, viz., M/s Universal Trading Co., M/s Mudasser Leather Co., and M/s Harris Faiz & Co. He also mentioned that in respect of these purchases no purchase vouchers were forthcoming and in fact the enquiries made by the I.T.O. showed that these concerns were bogus concerns. According to the C.I.T.(A), the I.T.O. had not considered whether the purchases made from these parties could be considered fictitious and it had not been considered whether the provisions of Section 40A(3) were applicable. The C.I.T.(A) also noted that the assessee had borrowed an amount of Rs.1,00,000 from M/s Universal Trading Co., M/s Mudasser Leather Co., and M/s Harris Faiz & Co. in September 1978 and it was repaid in instalments in October 1978. According to the C.I.T(A), sin.ce the enquiries made by the I.T.O. showed that these parties did not exist, the question of adding the unexplained cash credit Under Section 68 had also not been considered by the I.T.O. The C.I,T-(A) thereafter set aside the assessment and stated that the I.T.O. would make enquiries on the lines indicated by him and make a fresh, assessment in conformity with the evidence gathered. The assessment now in appeal before us is the de novo assessment made consequent to the setting aside of the original assessment by the order of the C.I.T(A) dt. 23-5-33.
5. The assessee is a firm of four partners. The I.T.O. has set out the background which we have already adverted to and thereafter he considered the aspect of inflation of purchases amounting to Rs.1,40,000. He again made an addition of Rs. 1,40,000 in the assessment now under consideration observing as under : -
The erasures and corrections in the figures were not denied, but it was stated that the value shown in the bills related to the purchase from these parties in the earlier year were wrongly entered by the accountant in the day book due to oversight and when the mistake was found out on verification, the corrections were made. When the representative was asked as to whether he could produce the bills and the relevant books relating to the earlier year, he readily agreed to do so. But later a letter dated 18-2-86 was sent by the assessee stating that the bills and books of accounts relating to the earlier year had become rot due to dampness and white ants had spoiled the complete set of books of account. Later, at the time of visit by this office Inspector, partner Shri K.M. Noorullah had explained that the room of the building in E.K.Guru Street, Madras-3, in which the books were kept collapsed due to uprooting of a margosa tree adjacent to the compound wall during the floods. If it were so, it is not clear how the representative agreed to produce the bills and account books relating to the earlier year. In the light of the admitted fact that the entries had been erased and corrected in the books and in the absence of production of any evidence, the explanation that the corrections were made to set right mistake committed by the accountant due to oversight remains unproved. If the explanation was true the assessee should have tried to get at the sellers and obtain carbon copies of the bills issued by them to put the explanation beyond doubt. As observed in the original assessment order as per entries in the books the immediate payments made to the sellers were near about the original figure and the balance was shown to have been paid and only in the subsequent accounting year. It is quite unacceptable that shandy dealers (as claimed by the assessee) would have parted with their goods without receiving the entire amount and would have waited till the next accounting year to receive the balance, especially when no further purchases were shown in their accounts in the next year. In the facts obtaining the only irresistible conclusion could be that the purchases had been deliberately inflated by manipulating the entries in the books. Accordingly, the above amount of Rs.1,40,000 will be added to the income admitted.
Thereafter the I.T.O. proceeded to examine whether any disallowance could be made Under Section 40A(3) and he came to the conclusion that an addition to the extent of Rs.2,19,121 had to be made under this provision relating to purchases in excess of Rs.2,500 which were not paid by account payee cheque, etc. The following tabular statement gives an aggregate figure of Rs.2,49,121: -
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Name of party Date of payment Amount paid
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Rs. Rs.
1. Sheik Haroon, Jolarpet 13-7-78 38,000
24-3-79 30,000 68,000
2. M. Sultan, Jolarpet 6-10-78 ------- 15,168
3. Syed Jaffar Khan, Dharmapuri 11-5-78 20,000
4. Farooq Ahmed, Jolarpet 25-7-78 23,096
5-1-79 50,000
22-1-79 4,671
21-3-79 20086 97,853
5. Majeed Ahmad, Ambur 16-8-78 ------- 24,000
6. Hyder Ali, Gudiyatham 23-8-78 14,100
7. Ibadullah, Cuttack 11-8-78 10,000
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Total 2,49,121
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From this the I.T.O. substracted'Rs.30,000 which related to the squared-up account of Sheik Haroon, and arrived at the balance of Rs.2,19,121. He did not accept the plea that the assessee's case fell outside the purview of Section 40A(3) in view of the fact that it came under the exceptions mentioned in Rule 6DD and one of such sub-rule related to purchase of the products of animal husbandry (including hides and skins). According to the I.T.O., the purchases were from commission agents and the shandy purchases did not contain the names of any of the purchasers excepting Farooq Ahmed.
6. The I.T.O. also went into the question of cash payments made to M/s Universal Trading Co., M/s Mudassar Leather Co., and M/s Harris Faizas & Co. In respect of M/s Universal Trading Co., the I.T.O. by applying the provisions of Section 40A(3) disallowed Rs.4,840, in respect of M/s Mudassar Leather Co. by applying the same provisions disallowed Rs.56,781 and in the case of Harris Faizas & Co., by applying the same provisions, added back Rs.9,236, or in the aggregate Rs.70,857 in respect of these three parties.
7. The I.T.O. also made a disallowance of Rs.45,000 on account of provision for sales-tax stating that the provision appeared to be arbitrary. The assessee appealed and the only relief the C.I.T.(A) directed in his order was that the I.T.O. would allow deduction of the actual sales-tax liability out of the provision made of Rs.45,000.
8. The assessee is in appeal before us and the submission of the learned counsel was that the aggregate of the additions made by the I.T.O. (Rs.1,40,000 + Rs.2,19,121 -I- Rs.45,000) came to Rs.4,74,978 and even if the disallowance for sales-tax provision was excluded, the addition would be of Rs.4,29,978 to the returned gross profit of Rs.2,1.7,960 which would give a gross profit of Rs.6,48,000 on a turnover of Rs.23,81.,000, which was more than 25%. He relied on a tabular statement showing the figures of turnover and profit as under: -
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Asst. Turnover Gross profit Remarks Net profit year returned assessed
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Rs. % Rs.
1976-77 13,35,407 9.4 G.P, accepted 40,992
1977-78 17,46,458 9.6 G.P, accepted 58,250
1978-79 16,28,443 7.5 G.P. accepted 55,343
1979-80 23,81,817 9.2 (Income returned 5,63,220
Rs. 80,800. Addition
made Rs. 4,74,978)
1980-81 12,20,793 7.6 (Income returned 2,57,900
Rs. 60,793. Addition
made Rs. 1,97,247)
1981-82 11,92,058 8.0 G.P. accepted 50,590
1982-83 11,54,074 5.2 G.P. accepted 47,420
1983-84 14,56,188 6.0 G.P. accepted 38,000
1984-85 17,57,950 5.0 G.P. accepted 71,804
1985-86 9,95,446 8.0 G.P. accepted 23,859
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His submission was that the book results had been accepted in all the years except the assessment year now under consideration and the assessment year 1980-81 and that the highest gross profit was only about 9.6%. According to the learned counsel, even assuming that there were defects in the accounts, an assessment should have been made to the best of the judgment and when the turnover had not been interfered with, viz., the sales had not been disputed, arriving at a gross profit, rate of 25% on the basis of additions made, invoking the provisions of Section 40A(3), etc. were not warranted. He also sought to urge that the provisions of Section 40A(3) itself would not be applicable because the assessee was purchasing hides and skins, etc., and the purchases made were from shandies or from parties, who were genuine. He, therefore, pleaded for a reasonable quantum of income being determined.
9. The learned departmental representative, on the other hand, stated that the ITO had made specific additions and these additions should not have been interfered with. The mere fact that by disallowing a portion of the purchases Under Section 40A(3), which resulted in large additions, he submitted, would not be a justification for reducing the quantum when the assessee was clearly hit by the provisions of the aforesaid section. In support of the stand he submitted that the sales-tax assessment order of M/s Universal Trading Co. showed that they were purchasing tanned skins and it was not a case where they were tanning skins, which the assessee had purchased in which case the provisions of rule 6DD would apply. According to the learned departmental representative, therefore, the assessment required to be upheld.
10. We have considered the rival submissions. There are exceptions under rule 6DD which state that no disallowance should be made in respect of certain types of payments. If the present purchases are of tanned skins from the persons who are tanned skins, then exemption would have been applicable under rule 6DD(f).
The. submission of the learned departmental representative was with reference to one of the orders of the sales-tax department, i.e. M/s Universal Trading Co., dt.16-3-81, and they were themselves buying and selling tanned skins. He, therefore, submitted that the assessee could not claim exemption under this provision. There have been several beneficial circulars issued also to avoid cases of genuine hardships. An example is Circular No. 220, dated 31-5-1977 (Taxmann's Income-tax Rules with Referencer-1986 - Circulars at a glance) where the following instances are given : -
Following are some of the circumstances which seem to meet the requirements of the rule -
- Purchaser is new to the seller.
- Transactions are made at a place where either the purchaser or the seller does not have a bank account.
- Transactions and payments are made on a bank holiday.
- Seller is refusing to accept payment by way of crossed cheque, draft and purchaser's business interest would suffer due to non-availability of goods otherwise than from a particular seller.
- Seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased goods.
- Specific discount is given by seller for payment to be made by way of cash.
The objective of Section 40A (3) is to ensure that the payments are genuine. We have stated this to highlight the fact that originally when the appeal was decided on the first occasion, the CIT(A) had occasion to observe that enquiries had shown that M/s Universal Trading Co., M/s Mudasser Leather Co., and M/s. Harris Faiz & Co. were not genuine parties and the purchases from these parties may be fictitious. Obviously, the subsequent elaborate enquiries made showed that these parties were genuine and at least in the case of Univeisal Trading Co., even a sales tax order has been produced. Also no addition has been made on the score that the purchases from these parties were fictitious or the amounts borrowed from these parties were fictitious. There is, therefore, no reason to suspect that payments aggregating to Rs. 70,857 to these three parties were not genuine. So also in respect of payments aggregating to Rs. 2,19,121 it is stated admittedly that the purchases were from Shandies, commission agents, etc., and, in our view, there is nothing to doubt the genuineness of these payments. The disallowance made Under Section 40A(3) on this score was Rs. 2,19,121.
11. However, this brings us to a very important aspect of the books of account. We have already set out the reasons which weighed with the ITO in making the addition of Rs. 1,40,000 towards inflation in purchases. There were clear erasures and corrections and overwritings whereby the difference of Rs. 1,40,000 occurred. This is what the ITO could detect on scrutiny of the accounts.
There is the following interesting observation in the commentary by Chaturvedi & Pithisaria on Income-tax Law (Vol.3 -Third Edition) at page 2904: -
Whether unreliable accounts can be rejected while making an assessement under Section 143(3):-
Under the 1922 Act, there was a conflict of judicial opinion on the point whether the Income-tax Officer, in making a 23(3) assessment, could reject ungenuine or incorrect accounts and invoke the proviso to Section 13. The Calcutta, Nagpur, Allahabad, Rangoon and Lahore High Courts laid down that the Income-tax Officer could have recourse to the proviso even in such cases (see, Seth Gurmukh Singh v. CIT [1944] 12 ITR 393/416 (Lah.); Ganga Ram Balmokand v. CIT [1937] 5 ITR 464 (Lah.); Navadwipchandra Nagendra Das, In re [1939] 7 ITR 488 (Cal.),Shamrao B. Deshmukh v. CIT [1939] 7 ITR 515 (Nag.); Eknath Bettappa Lingyat Wani v. CIT [1942] 10 ITR 110 (Nag.); Ram Khdawan and Sahu ThakhurDas, In re [1939] 7 ITR 607 (All.); Ganeshi Lal Chappan Lal v. CIT [1941] 9 ITR 81 (All.); Radhey Lal Balmukand, In re [1930] 52 All 991 = 4 ITC 454; CIT v. Chan Lo Chwan AIR 1929 Rang. 102-3 ITC 397.
On the other hand, the Madras High Court had dissented from the above view on the ground that 'section 13 did not contemplate the rejection of the accounts' Gunda Subbayya v. CIT [1939] 7 ITR 21 (Mad.), Sree Shanmugar Mills Ltd. v. CIT [1974] 96 ITR 411 (Mad)].
It may be remembered that the decision in Seth Gurmukh Singh's case (supra) was approved by the Supreme Court in Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775,782.
Under the 1961 Act, there is no room for such conflict as Section 145(2) covers the situation wholly and squarely.
The provisions of Section 145(2) of the I.T. Act, 1961 read as under : -
145(1) Income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall be computed in accordance with the method of accounting regularly employed by the assessee:
Provided that in any case where the accounts are correct and complete to the satisfaction of the Income-tax Officer but the method employed is such that, in the opinion of the Income-tax Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine.
(2) Where the Income-tax Officer is; not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the Income-tax Officer may make an assessment in. the manner provided in Section 144.
In the Full Bench decision of the Madras High Court in the case of P.S, Sub-ramaniam Chettiar & Sons v. Joint CTO [1966] 18 STC 357, it has been stated at. page 362 as under: -
Broadly speaking, in the taxation laws of this country, be it income-tax or, sales-tax,, assessment by best judgment as a distinct category of power has come into practice and wherever the Legislature thought fit, it expressly conferred that power upon the Assessing Authority.
(Emphasis supplied) The above observations are clear authority for the proposition that a distinct category of power has been conferred by the Legislature upon the assessing officer to make a best judgment assessment [see Section 145(2)] where he is not satisfied about the correctness or completeness of the accounts of the assessee. It has also been stated by the aforesaid provision that such an assessment is to be made in the mariner provided Under Section 144, i.e., all relevant material which the I.T.O. had gathered is to be taken into account and the total income is to be computed to the best of his judgment. The Madras High Court in the case referred to has spelt out the manner of best judgment assessment further as under : -
As case for best judgment arises at the initial stage of assessment either where no return is filed or where a return" is filed, it is incomplete or incorrect. In such a case, it will not be expected that accounts or other materials will be forthcoming on which assessment can be directly based. The Assessing Authority who is charged with the duty of assessing the quantum of turnover will have, therefore, to determine the turnover to the best of his judgment. Best judgment, however, does not mean that the Assessing Authority can base the quantum determined by him on no material at all. If there is some material either in the form of direct evidence or circumstantial evidence or in the form of facts which may lead to a reasonable inference, the Assessing Authority may well be justified in relying on the same and fixing the quantum on an estimate. While the quantum fixed by best judgment should necessarily be based on some material at least, the extent can be justified only if it is on a reasonable basis. It is, however, conceivable that in the nature of things best judgment may involve a certain amount of guess. But that does not mean that the guess can be capricious or unreasonable or totally without a basis. It may be seen, therefore, that assessment by best judgment is a distinct procedure sanctioned by tax laws whenever it is intended.
(Emphasis supplied)
12. In a case like the present one, therefore, we have to decide whether in order to make a correct assessment, which would be, as far as possible, one of estimate of the true income, resort should be had to the option given Under Section 145(2) or additions should be made under various provisions, which would result in the emerging of an amount which would have a relevance or relation to what could be the true income. The Income-tax Act contains many instances where alternative methods of assessment for computation have been provided for. Example, in the case of an Association of Persons, the I.T.O. could exercise the option to assess either the members of the association individually or the association itself [see CIT v. Murlidhar Jhawar & Puma Ginning & Pressing Factory [1966] 60 ITR 95 (SC). In the case of MM Ipoh v. CIT [1968] 67 ITR 106 (SC), the discretion given to the I.T.O. to bring to tax either the income of the association collectively or the shares of the members of the association separately, was challenged as offending Article 14 of the Constitution of India. In the course of the judgment Shah, J. speaking for the Supreme Court, observed at pages 112 and 113 as under : -
Section 3 of the Income-tax Act does not, it is true, expressly lay down any policy for the guidance of the Income-tax Officer in selecting the association or the members individually as entities in bringing to tax the income earned by the association. Guidance may still be gathered from the other provisions of the Act, its scheme, policy and purpose, and the surrounding circumstances which necessitated the legislation. In considering whether the policy or principles are disclosed, regard must be had to the scheme of the Act. Under the Act of 1922, the Income-tax Officer is required to issue a general notice calling upon all persons whose total income during the previous year exceeds the minimum nor chargeable, to lax to submit a return of income, The Income-tax Officer may also serve an individual notice requiring a person whose income in the opinion of the Income-tax Officer is liable to tax to submit a return of income. Primarily, the return of income would be made by an association, where the association has earned income, and the Income-tax Officer would also call upon the association to submit a return of its incqnie, and would ordinarily proceed to assess tax on the return so made. But for diverse reasons, assessment of the income of the association may not be possible or such assessment may lead to evasion of tax. It would be open to the Income-tax Officer then to assess the individual members on the shares received by them. The duty of the Income-tax Officer is to administer the provision of the Act in the interest of public revenue, and to prevent evasion or escapement, of tax legitimately due to the State. Though an executive officer engaged in the administration of the Act, the function of the Income-tax Officer is fundamentally quasi-judicial. The Income-tax Officer's decision of bringing to tax either the income of the association collectively or the shares of the members of the association separately is not final: it is subject to appeal to the Appellate Assistant Commissioner and to the Tribunal. In CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225, it was held by this court that the Appellate Tribunal has ample power under Section 33(4) to set aside an assessment made on an association of persons and to direct the Income-tax Officer to assess the members individually or to direct amendment of the assessment already made on the members. Exercise of this power is from its very nature contemplated to be governed not by considerations arbitrary but judicial. The nature of the authority exercised by the Income-tax Officer in a proceeding to assess to tax income, and his duty to prevent evasion or escapement of liability to pay tax legitimately due to the State, constitute, in our judgment, adequate enunciation of principles and policy for the guidance of the Income-tax Officer.
(Emphasis supplied)
13. The question had arisen in another case whether action should have been taken Under Section 34 of the 1922 Act or Under Section 35 of that Act, and in the case of Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547, the Madras High Court observed at page 565 as under : -
The real question is not whether Section 34 and Section 35 are mutually exclusive in their operation, but whether in a given case, the statutory requirements are satisfied. If in a given case the requirements of both Section 34 and Section 35 are satisfied, the Income-tax Officer can have recourse to either. Tliat in such a case there is overlapping will not bar recourse to either section at the choice of the assessing authority.
(Emphasis supplied)
14. In the case of State Bank of Travancore v. CIT [1986] 158 ITR 102/24 Taxman 337 (SC), Sabyasachi Mukharji, J. with whom Ranganath Misra, J. concurred, has formulated in the course of the judgment certain propositions relating to the concept of real income and adoption of the same for assessment purposes. The propositions, which are relevant from the judgment of his Lordship in so far as the present case is concerned, are the following: -
(a) Where the Act applies, the concept of real income should not be so read as to defeat the provisions of the Act
(b) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well-recognised limits.
Thereafter his Lordship went on to conclude:
The concept of real income certainly is a well-accepted one and must be applied in appropriate cases but with circumspection and must not be called in aid to defeat the fundamental principles of the law of income-tax as developed
15. In the case of MM Ipoh (supra), the Supreme Court had pointed out that the duty of the I.T.O. is to administer the provisions of the Act in the interests of public revenue and to prevent evasion or escapement of tax legitimately due to the State-Therefore, as seen from the observations we have set out aforesaid, the duty of an appellate authority also is to ensure that the provisions of the Act are administered in the interests of public revenue so as to prevent evasion or escapement of tax and at the same time to ensure that only tax legitimately due to the State is collected.
16. If two alternatives are possible, viz., where by applying in seriatim the different provisions of the Act [including Section 40A(3)], a quantum of total income would result, which, looking to all attendant circumstances, is grossly unrealistic and excessive and there is an alternative method provided under the Act, which, if applied, would give a more realistic estimate of income, which, while ensuring that there is no evasion of tax, would also safeguard the tax legitimately due to the State, we feel that the latter method is the one which is to be adopted. We are fortified in this view we are taking by the observations of H.R. Khanna", J. in the decision of the Supreme Court in CIT v. Simon Carves Ltd. [1976] 105 ITR 212 where it was observed at page 218 : -
The taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. We are wholly unable to subscribe to the view that unless those authorities exercise the power in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed not to have exercised it in a proper and judicious manner.
17. In the present case, therefore, where the accounts clearly are not correct and complete, the provisions of Section 145(2) are attracted. The Act clearly provides in such cases that the I.T.O. may make an assessment in the manner provided Under Section 144, i.e., to the best of his judgment. In coming to this conclusion that this is the more preferable method to be followed in this case, we have not read the Act so as to defeat any provisions thereof, and in our view, we have given due regard to the concept of real income and applied it with care and within the well-recognised limits, which does not defeat any fundamental principle of law of income-tax as developed, as enjoined by the Supreme Court in the case of State Bank of Travan-core (supra). Merely because a best judgment assessment is made, it does not mean that any relevant material in the books of account should be discarded or ignored. In the present case, we proceed to compute Under Section 145(2) the total income to the best of our judgment as under : -
Income as admitted Rs. 88,240 Inflation in purchases as culled out from the entries in the Rs. 1,40,000 books of account which we have considered as constituting only material relevant for making a best judgment assessment since the accounts are not correct and complete in view of the facts detailed earlier.
By the addition of Rs. 1,40,000 to the gross profit returned of Rs.2,17.960 the gross profit goes up to Rs.3,57,960, which is about 15% of the turnover of Rs.23,81,817. There is no material which would warrant an upward estimate of the turnover which we therefore leave undisturbed. In the three preceding years 1976-77, 1977-78 and 1978-79 the highest gross profit ever assessed was only 9.6%. In all the succeeding assessment years up to 1985-86, excepting assessment year 1981-82 when an estimated addition has been made and is still the subject-matter of appeal, the highest gross profit ever assessed is only 8%. Looking to these facts and considering that even after elaborate investigations subsequent to the assessments having been originally set aside, it has not been proved that the parties such as M/s Universal Trading Co., M/s Mudasser Leather Co. and M/s Harris Faiz & Co. were fictitious, and on the other hand, the evidence goes to show that such parties really exist, and considering that there is no material to suggest that there was any inflation of price in respect of purchases from these parties .(in respect of which an addition of Rs.70,857 was made by applying Section 40A(3)) and considering that the remaining purchases were from parties who have also not been shown to be fictitious, or to be from shandies etc., and there being no material to suspect the genuineness of the price paid in those cases with reference to any comparable rates etc., we consider, having regard to the total turnover shown and the addition already made of Rs.1,40,000 to the gross profit on the ground of inflation which raises the gross profit to Rs.3,57,960, the only further addition warranted would be additions for any small adjustments in the Trading and Profit and Loss Account etc. This of course is apart from the provision for sales-tax of Rs.45,000, which, it is clear from the facts ascertained by us during the hearing, is not a provision which relates to this year and is, therefore, not admissible as a deduction. Therefore, as a result of the computation now made, the aggregate works out to Rs.2,73,240 (Rs.88,240 + Rs.1,40,000 + Rs.45,000). Since the assessment is made to the best of judgment and the possibility of some other inadmissibles, as adverted to earlier, not being ruled out, we would fix the figure of total income assessable at Rs.3,00,000 in round figures.
18. In the result, the appeal is allowed in part.