JUDGEMENT
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(1.)The Tribunal, Allahabad, has referred the following two questions of law under Section 256(2) of the IT Act, 1961, hereinafter referred to as the Act, for opinion to this Court :
"1. Whether, on the facts and circumstances of the case the proviso to Sub-section (1) of Section 145 or Sub-section (2) of Section 145 of the Indian IT Act, 1961, were attracted in the present case ? 2. Whether, on the facts and circumstances of the case, the IT authorities as well as the Tribunal were justified in drawing adverse inference by the issue of the three post-dated cheques in order to pacify the Karigars on their pressing demand, the amount of which were actually paid to them and the certificates to that effect were filed ?"
(2.)The present reference relates to the asst. yr. 1978-79 from the case of the assessment proceedings.
(3.)The ITO found that the assessee, who was following mercantile system of accounting and who did the business of purchase and export of wall hangings, declared sales of about Rs. 15 lakhs, but the. gross profit declared was negligible (.01 per cent only). In the immediately preceding year, the gross profit was declared @ 13.4 per cent on sales of about Rs. 10,58,000. On enquiry from the assessee, the ITO could know that, according to the assessee, the sales this year were made practically at cost price to avail of the cash incentives and to increase the turnover. The ITO also found that the sale rates were higher this year. The explanation of the assessee was that purchase cost had also gone up. The ITO scrutinised the purchases and could know that the assessee had made payments to Karigars amounting to Rs. 75,000 by three post-dated cheques of Rs. 25,000 each. These cheques were encashed either by the assessee's representative or by one of the partners of the assessee-firm. He, therefore, added the amount of Rs. 75,000 in the assessment order mentioning that there was no stock register and that replies of the Karigars who had confirmed the receipts, were identically worded, which showed that the reply was drafted by common source. The ITO held that the book results were not acceptable. He added Rs. 75,000 to the income, as according to him, the cost of the goods was inflated.
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