1971 PLP 369 (PTD)

A. NARAYANA PAI, J.‑‑The assessee, who is a manufacturer of agarbathies, made a return of his income for the assessment year 1958‑59 disclosing Rs. 23,718.00 as the aggregate income from his business, The Income‑tax Officer declined to accept it and, acting under the proviso to section 13 of the Income‑tax Act of 1922, estimated his profits at 30 per cent of the turn over resulting in an addition of Rs.25,792.00 to the gross profits disclosed by the assessee. The opinion of the officer was confirmed on appeal both by the Appellate Assistant Commis sioner and later by the Income‑tax Appellate Tribunal. The assessee moved the Tribunal under section 66(1) to refer the following question to this Court: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in sustaining the addition of Rs. 25,792 made for deficiency in the gross profits disclosed by the assessee ?" The Tribunal dismissed the application on the ground that no question of law arises out of the appellate order. The assessee then moved this Court under subsection (2) of section 66 to direct the Tribunal to refer the very same question to this Court. After hearing both the counsel for the assessee as well as the Depart ment, this Court by its order dated 10th August 1962, directed the Tribunal to refer to this Court the question suggested by the assessee with a certain modification. The question as formulated by this Court and now referred by the Tribunal reads as follows: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in sustaining the entire addition of Rs. 25,792 made for deficiency in the gross profits disclosed by the assessee?" It will be seen that the word "entire" added by this Court to the question as originally suggested by the assessee makes considerable difference to the case as originally put forward by the assessee. If the question had been framed as originally suggested by the assessee, it would have involved an examination of the further question whether this was at all a case to which the proviso to section 13 of the Income‑tax Act of 1922 would apply. By adding the word "entire" the said subsidiary question must be regarded as having become unnecessary for our consideration now, because the question as formulated by this Court proceeds upon the footing that the proviso does apply to this case and limits the question to be referred to the sustainability or otherwise of the addition of Rs. 25,792 in its entirety. The question for consideration therefore is that, whether the Tribunal has acted legally or illegally in adding the entire amount to the gross profits as returned, thereby implying that, had it acted in accordance with law, there would have been possibility of a smaller amount being added or the Tribunal getting satisfied that the amount as originally returned by the assessee was acceptable and did not call for any addition being made thereto. It is on this footing that we have examined the position and permitted argument to be addressed. If the proviso to section 13 applies to this case, then ordi narily the only question that would remain would be one of fact, viz. whether the estimate made by the authorities or the Tribunal was or was not possible on an examination of the material on record. But the error of law pointed out on behalf of the assessee is that, whereas at all stages the estimate was based on what are described as comparable cases, at no stage was the assessee put on notice of the same and given an opportunity to persuade the authorities or the Tribunal that the conditions of trade obtaining in such comparable cases were different from the conditions of lids own trade and that therefore the measure of profits in those cases should not be looked into for estimating the profits of his own trade. That such an opportunity should be given to an assessee is the decision of the Supreme Court in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income‑tax ((1954) 26 I T R 775 (S C)). The principle was applied by this Court in the case of K. Baliah v. Commissioner of Income tax ((1965) 56 I T R 182). On behalf of the Department, however, it has been argued that the principle stated in Dhakeswari Cotton Mills has later been modified by the Supreme Court in the case of S. N. Namasi vayam Chettiar v. Commissioner of Income‑tax ((1960) 38 I T R 579 (S C)), and that in Baliah's case mentioned above the question itself was framed exclusively on the complaint of the assessee therein that he had not been given an opportunity of looking into the alleged comparable cases. In the case of S. N. Namasivayam Chettiar relied upon by the Tribunal, the Supreme Court did not depart from the principles stated by it in Dhakeswari Cotton Mills' case. Indeed the position upon facts in that case was that the complaint made against the Appellate Tribunal that it had not given the assessee an opportu nity of the type described in Dhakeswari Cotton Mills' case was not warranted upon facts. Regarding the framing of the question, the difference between the question framed in Baliah's case and the question framed in this case is of little consequence for the reasons already discussed above, indicating the exact effect and meaning of the question as framed in the peculiar circumstances of this case. On the question of fact whether the assessee had or had not been given an opportunity to took into the alleged comparable cases, it is unnecessary to go beyond what is found stated expressly in paragraphs 3 and 4 of the statement of case submitted by the Tribunal. In the former paragraph, while enumerating the ques tions raised before the Appellate Assistant Commissioner, the Tribunal clearly states that one of the contentions was that the com parable cases were not put to the assessee and that, therefore, the assessee had no opportunity to show that they were not compar able cases at all. In paragraph 4 the Tribunal states that all the contentions raised before the Appellate Assistant Commissioner were once again urged before the Tribunal. The appellate order of the Tribunal disclosed no consideration of this point by the Tribunal. The result, therefore, is that the order of the Tribunal in these circumstances, which involves a contravention of the principles stated by the Supreme Court in the cases cited above, is an order which is illegal for the said reasons. Our answer to the question, therefore, is that, on the facts and in the circumstances of this case, the Appellate Tribunal was not justified in sustaining the entire addition of Rs. 25,792 on account of deficiency in the gross profits as returned, without giving an opportunity to the assessee to look into the comparable cases and to satisfy the Tribunal that they may not be comparable cases. The 'Tribunal should have given such an opportunity by way of correcting the errors committed by the original and the first appellate authority in not having given such an opportunity to the assessee. The effect of this answer is that the assessee's appeal before the Tribunal has not yet been decided in accordance with law. The assessee will have his costs. Advocate's fee Rs. 250.