Law: Income Tax Act, 1922

Section:

Assessment-Determination of total income-Addition of amounts to income shown in books without evidence that transactions were not bonafide or were sham-Whether sustainable-Held no-Purchase of tobacco-Average price of all tobacco purchases taken into account to decide that certain transactions were inflated irrespective of qualities and fluctuations in the market rate-Whether method unscientific-Held yes. The assessee was a registered firm carrying on business in tobacco on its own account as well as on commission basis. In the assessments for the assessment years 1962-63 to 1965-66, the Officer added back certain items on the ground that the purchase price paid for tobacco to seven partners of the firm and to CKP, father of three partners, was inflated. He calculated the average price of the price paid to the partners and CKP and the average price of the price paid to other and calculated the additions on the basis of the difference between the two prices and the total quantities sold to the partners and CKP in each of the years. On appeals, the Appellate Assistant Commissioner and the Appellate Tribunal agreed with the Income Tax officer. They held that the assessee had failed to prove its case that the tobacco purchased from the partners and CKP was of a superior quality. On a reference: Held, that unless it has been shown that the transactions in question were sham ones or unless the value shown was not the value in the books of accounts or unless they were not bona ride transactions, it was not open to the taxing authorities to disregard the figures of the transactions shown in the books of account of the firm: Sri Ramalinga Choodambikai Mills Ltd. V. CIT [1955] 28 ITR 952 (Mad.), CIT v. Keshavlal Chandulal [1966] 59 ITR 120 (Guj) and Das & Co. V. CIT [1962] 45 ITR 369 (Pat) relied on. In the instant case, it was nobody's case that the transactions of sale from the partners and CKP to the assessee-firm were not bona tide transaction nor was it the case of the department that they were sham transactions or that the price paid in respect of each of these transactions by the assessee firm was other than the one set out in the books of account of the firm.…

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