Law: Income Tax Act, 1961

Section: 256,256(2).

Income-tax----Reference---Income from undisclosed sources---Finding that there was no income from undisclosed sources---Finding of fact---No question of law arose---Indian Income Tax Act, 1961, S.256(2). The assessee, a Government company, was a manufacturer of country liquor. The entire produce of its distillery unit was sold to the State Government pursuant to an agreement that it held with the State Government and at a price which was fixed by the State Government. As per" the agreement, the price of. liquor was fixed at the rate of rupee one per litre. However, the Inspecting Assistant Commissioner (Assessment) found that provisionally the rate of liquor was fixed at Rs.1.24 per litre which had been finally fixed at Re. 1 per litre and that made him presume that the price must have been reduced to Re. 1 per litre just to avoid taxes. Fixing the rate at the rate of Rs.1.24 per litre he made the addition of Rs.24 lakhs in the trading results and this addition was confirmed by the Commissioner (Appeals). The Tribunal ultimately found that the Department had failed to furnish proper materials despite opportunities granted to it to support the note of the Financial Controller, dated January 2, 1980 wherein the assessee suggested the reduction in the rates for the year 1978-79 only to reduce the profits for the purpose of avoiding the income-tax which it had otherwise earned from the retail trade of country liquor shops at Jaipur, Kota and Alwar, amounting to Rs. 1 crore. That really formed the main substratum of the order for the Inspecting Assistant Commissioner (Assessment), so as to form a view that the reduction of rate from Rs.1.24 per litre to Re. 1 per litre had only been done for the purpose of evading income-tax. However, the Tribunal found that the note of the Financial Controller was not by itself sufficient to support the addition in the assessment specially when the assessee was itself a Government company and where no question of personal taxes was involved. Considering the profits earned by the assessee with the help of the State Government from the three country liquor shops at three different places, the Tribunal took the ultimate view that…

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