1963 PLP 297 (PTD)

"No cash memos. are available either for purchases or sales. Assessee was asked to give the addresses of certain parties from whom sales and purchases were made but he expressed his inability to do so. It is however observed that mostly sales have been made to Karachi office and the margin of profit is likely to be much less." The Income‑tax Officer estimated the profits on the total sales of sovereigns at the rate of 0.5% at Rs. 56,901 and after deducting therefrom Rs. 6,492 returned by the appellant as his profit, he added on the sovereign account Rs. 50,409 as income in the transactions in sovereigns in the Bombay branch. In an appeal against the order passed by the Income‑tax Officer, the Appellate Assistant Commissioner, Calcutta, confirmed that order observing: "It is stated by the appellant's representative that the Income-tax Officer wrongly rejected the profit in this account because out of the total number of sovereigns purchased, viz., 1,80,997 pieces, 1,66,188 pieces were sent to Karachi on commission and 500 were sent to Calcutta office at cost price and the balance, viz., 14,309, were sold to well‑known bullion merchants of Bombay. It is also stated that the cash memos. and vouchers for these purchases and sales transaction were not available because it was not the practice of maintaining them in Bombay. It is, however, noticed by me from the account books that the assessee did not record in the books of accounts the addresses of the parties with whom transactions were made and so they do not admit of any verifica tion. The sales were also found to be mostly in cash. In view of this fact and also the fact that the rate of gross profit is very low, I consider that the Income‑tax Officer was justified in not accepting the trading result shown. As regards the number of pieces stated to have been transacted, in the absence of supporting evidence regarding the number of sovereigns actually transacted upon, I do not think it is possible for me to accept the contention that the low margin of profit was fully explained by the above facts alone. The Income‑tax Officer's estimate of .5% as the rate of gross profit in the cases seems to be quite reasonable and he has given due consideration to the fact that the assessee had made considerable sales to Karachi office." Against this order, an appeal was preferred to the Income‑tax Appellate Tribunal. The Tribunal rejected the contention raised by the appellant observing in paragraph 8 of the judgment that "for the reasons given by the Appellate Assistant Commissioner with regard to the sovereign account in the Bombay branch, we find no reasons to interfere in his decision." The appellant then applied to the Tribunal to refer certain question arising out of the order to the High Court at Calcutta. Question No. 2 suggested by the appellant as arising out of the order of the Tribunal was as follows: "Whether in the, facts and circumstances of the, case the Tribunal should not have held that the turnover both in Calcutta and branches on which the flat rate is to be applied should be arrived at after deducting therefrom the sum of Rs. 1,47,98,413 admittedly found by the Income‑tax Officer to have been trans ferred to Karachi from Calcutta and the various branches?" The Tribunal rejected the application. The appellant then applied to the High Court, at Calcutta that the Tribunal be directed to submit a statement of the case on three question,. The question material to the sovereign account was framed as follows; "Whether there was any material to hold that the Bombay branch of your petitioner sold 1,66,188 pieces of sovereign to the Karachi branch at market rates?". The High Court summarily rejected the application. In the proceeding before the Income‑tax authorities, the con tention of the appellant does not appear to have been clearly appreciated, and the grounds set out in the memoranda of appeals filed before the Appellate Assistant Commissioner and the Appellate Tribunal contributed in no small degree in giving rise to that situation. The grounds submitted were somewhat verbose indicating a vague perception of the true contention raised by the appellant. The question submitted for reference to the Tribunal was different from the question on which the High Court was moved to order a statement of case. The question submitted to the Appellate Tribunal was much wider in scope than the question submitted to the High Court. Notwithstanding these infirmities in the proceedings and in the contentions raised by the appellant, we are of the view that a question of law does arise out of the order of the Tribunal. The Income‑tax Officer observed, as stated hereinbefore, that in the year of account, the appellant had' sold 1,66,188 pieces of sovereigns to his Karachi branch and 14,309 pieces in the local market in Bombay, and he estimated the gross profit at the rate of 0'5% on an assumed total sale of Rs. 1,13,80,

331. The appellant contended that he was the owner of the Bombay branch as well as of Karachi branch and that he had despatched the sovereigns from Bombay to Karachi for sale and that such a despatch did not amount to sale of sovereigns to the Karachi branch. The charge of 2 annas as commission per Rs. 100 for which a separate account was maintained by the appellant was, it was contended, not profit and that it was not included in Rs. 6,464‑4‑0 disclosed as the profit on sales in the Bombay branch. According to the appellant, this profit accrued to him on the local sales of 14,309 pieces. Counsel for the Department submitted that even if the transactions of despatch of sovereigns from Bombay to Karachi by the appellant to his own branch may not be regarded as sales, the true effect of the order of the Income‑tax Officer is to assess the profits earned by the appellant on the local transaction in Bombay. This, counsel contended, had to be done because the books of account of the Bombay branch were unreliable and the other evidence produced by the appellant regarding the ‑prevailing rates was unsatisfactory. We are unable to accept this contention. The Income‑tax Officer has calculated the gross profit at an overall date on all the transactions in sovereigns in the Bombay branch including despatches of sovereigns to Karachi and local sales in Bombay on the footing that they were sale transactions. The order passed by the Income‑tax Officer does not refer to any evidence in support of the assertion made by him that the Bombay branch of the appellant sold sovereigns to the Karachi branch. The Appellate Assistant Commissioner did not reject the plea raised by the appellant that the sovereigns purchased by the Bombay branch were sent to the Karachi branch on commission. The criticism of the Appellate Assistant Commissioner about the unsatisfactory character. of the evidence has a bearing on the local sales and not on the despatches to Karachi. The Tribunal merely accepted the conclusion of the Appellate Assistant Commissioner; it gave no independent reasons in support of its order. The income‑tax authorities did not find that on a compari son of the rates at which the sovereigns are debited in the Bombay branch and the rates at which they were credited in the Karachi branch, any profit was earned by the Bombay branch. The commission account is not incorporated in the printed paper book, but it is not even suggested that the commission, was in, the nature of profit and not service charges as submitted counsel for the appellant. In our view, a question of law arises from the judg ment of the Tribunal which confirmed the order of the Appellate Assistant Commissioner. We accordingly direct that the Tribunal do draw up and submit a statement of the case on the following question which arises from the order of the Tribunal; "Whether there was any material to hold that the Bombay branch of the assessee sold 1,66,188 pieces of sovereigns to the Karachi branch?" We are in this appeal not concerned with the correctness of the rate applied by the Income‑tax Officer on the local sales of sovereigns in the Bombay market. We are only concerned with the question whether there was any material to hold that the Bombay branch of the appellant had sold 1,66,188 pieces of sove reigns to the Karachi branch. On the view taken by us, we need pass no order in Appeal No. 407 of 1958. Appeal No., 408 of 1958 will be allowed with costs in this Court. Order accordingly.