Law:

Section:

Section 144 of the Income-tax Act, 1961 (corresponding to section 23(4) of the Indian Income-tax Act, 1922) - Best assessment - Assessment year 1960-61 - Assessee was running a rice mill - It purchased paddy from local suppliers - ITO accepted quantity of paddy purchased but did not accept purchase, price and made additions after estimating average cost price - On appeal, AAC significantly reduced amount of addition - On revenue's appeal, Tribunal again enhanced amount of addition - Whether since Tribunal had not given any basis of its own estimate, order passed by it could be regarded as arbitrary - Held, yes - [Matter remanded to Tribunal for disposal afresh in accordance with law] FACTS The assessee had owned and run a rice mill. During relevant accounting year, the assessee purchased paddy from local suppliers, viz, 'byaparis' and also from the cultivators. In the assessment for the assessment year 1960-61, the ITO noted that the purchases of paddy were supported only by the assessee's own documents being bills containing signatures and thumb impressions of the sellers. The ITO also took note that the average cost price of paddy so purchased was Rs. 13.44 per maund. The cost of rice obtained from such paddy including the manufacturing and other expenses came to Rs. 22.17 per maund but the same rice was sold at a lower rate viz., Rs. 21.84 per maund. The ITO accepted the sale figures of the assessee inasmuch as the same were vouched and were found to have been made at the prevailing market rate. It also appeared that the ITO accepted the quantity of paddy purchased by the assessee, maunds, during the said assessment year. But he did not accept the purchase price of the paddy on the ground that by reason of the aforesaid defects in the supporting documents there was a great possibility of inflating such price. Accordingly, he estimated the average cost price of such paddy at Rs. 12 per maund. On that basis he added a sum of Rs. 6.33 lakhs to the accounts. On appeal, the AAC accepted most of the contentions of the assessee and reduced the addition to a sum of Rs. 5,000 in respect of paddy purchased by the assessee. On revenue's appeal, the Tribunal concluded…

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