Law:

Section:

Section 145 of the Income-tax Act, 1961 - Method of Accounting - Estimation of profits - Assessment years 1962-63 to 1965-66 - Assessee firm was found to have purchased tobacco from its partners at higher price than average price paid to outside parties - ITO, thus, added back certain amount on ground that purchase price of tobacco was wrongly inflated - Tribunal affirmed decision of ITO - Whether unless it was shown that transaction was not bona fide one or to be a sham or price paid was not what was shown in books of account, it was not open to revenue to disregard figures of transactions shown in books of account of assessee-firm - Held, yes - Whether, therefore, Tribunal was not justified in disallowing a part of actual price of tobacco paid by assessee-firm - Held, yes FACTS While completing the assessments for the relevant assessment years the ITO added back certain items on the ground that the purchase price of tobacco paid to seven partners of the assessee-firm as well as to 'C' father of three of the partners of the assessee-firm was inflated. On appeal, it was contended before the AAC that the higher price was paid by the assessee-firm in respect of the purchases of tobacco from the partners and 'C' in view of the superior quality of tobacco purchased from them. The AAC did not feel satisfied about this contention of the assessee because no evidence was produced by the assessee before the AAC in support of the contention that the quality of the tobacco purchased from partners and from 'C' was superior. The AAC, thus, dismissed the assessee's appeal. On further appeal, the Tribunal upheld the decision of the AAC. On reference : HELD In view of the decision of this High Court in CIT v. Keshavlal Chandulal [1966] 59 ITR 120 , unless it has been shown that the transaction in question was a sham one or unless the value shown was not the value in the books of accounts or unless it was not a bona fide transaction, it was not open to the taxing authorities to disregard the figures of the transactions shown in the books of account of the firm. In the instant case, it was nobody's case that the transactions of sale from the partners and 'C' to the assessee were…

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