MANCHANDA J. - This is a case stated under section 66(2) of the Income-tax Act 1922 (hereinafter referred to as the Act).
The two questions referred are :
'1. Whether, in the circumstances of the case, the application of the flat rate of 5 per cent. was justified when in the case of another dealer of the same place, namely, M/s. Abid Hussain Sajjad Hussain of Mubarakpur, who is also an assessee, a rate of 2% disclosed was accepte ?
2. Whether, in any case, the income-tax authorities were not liable to split up the total estimated turnover of Rs. 1,50,000 into turnover of business on commission and turnover of business on own account and applied a lower rate on turnover from business on commissio ?
The material facts are these. The assessee is a Hindu undivided family and the assessment is for the year 1950-51. The assessee was dealing in Banarsi goods and the sales were both on commission basis as well as on his own account. An income of only Rs. 1,443 from business was returned. In response to the notice under section 23(2), only a register which contained particulars of goods purchased and sold either by V. P. P. or railway was produced. No other accounts in the shape of case book, ledger, etc., were maintained. In these circumstances, the proviso to section 13 of the Act was applied. The Income-tax Officer estimated the sales at Rs. 2,50,000 on which a flat rate of 5% was applied. In applying this rate the Income-tax Officer took into consideration the fact that the assessee did some business also on his own account. On appeal, the Appellate Assistant Commissioner confirmed the assessment. He observed that there was no check either on purchases or on sales and, therefore, it could not be said that all the transactions had been accounted for. Further, that in a similar commission business at Banaras a profit of one anna in the Rupees was charged and brokerage of 6 pies in the Rupees on purchase. On second appeal, the Tribunal agreed that the proviso to section 13 of the Act had properly been applied but on the facts and circumstances of the case, reduced the turnover to Rs. 1,50,000 retaining the flat rate of 5% gross profit.
For the first time before the Tribunal, by an application dated 22nd February, 1954, the assessee referred to what it considered to be a comparable case. Thereupon the Tribunal directed the departmental representative to obtain the record of that case. At the hearing it seems no reference to that case was made by the assessee for the reason best known to him. The Tribunal did not consider that any interference with the rate 5% was called for. It was mentioned that most of the sales were 'invoice sales', which means outstation sales, and the inference was that such sales usually carry a larger margin of profit than local sales. No attempt also appears to have been made at any time before the Tribunal to split up the turnover of the business on commission basis and the turnover on own account so that different rates might be applied to such turnovers. In these circumstances, the question as to the consideration of comparable case mentioned by the assessee does not really arise nor does the question regarding the splitting up of the turnover arise out of the order of the Tribunal. In any event, it is well settled that, once a proviso to section 13 applies, it is for the Income-tax Officer to determine fairly and not arbitrarily the basis on which the income will be estimated. In estimating the income the conditions of trade obtaining and the average margin of profit in the particular line of business are to be borne in mind. It is clear that these factors in the present case have been kept in view and, therefore, it is not possible to say that the estimate of income was arbitrary or capricious to justify holding that some error of law had been committed by the Tribunal in confirming the flat rate of 5% applied by the departmental authorities. It is again well settled that an estimate can be made by applying a flat rate and, so long as the Income-tax Officer has exercised his judgment reasonably and not arbitrarily or capriciously, the finding given by him will be one of fact and not of law.
For the reasons given above the questions referred are answered against the assessee. The assessee will pay the costs of this reference, which we assess at Rs. 200. Counsels fee is also assessed at Rs. 200.
Questions answered against the assessee.