R. N. MISRA J. - At the assessees instance, on applications made under section 256(2) of the Income-tax Act of 1961 (hereinafter referred to as 'the Act'), we required the Appellate Tribunal, Cuttack Bench, to state a case and refer the following question for opinion of this court :
'Whether, on the facts and in the circumstances of the case, and in view of the grounds raised in the memorandum of second appeal, the Tribunal was justified in saying that the assessee had not raised any specific ground as to the reasonableness of the rate of profit applied to the cases ?'
These three cases relate to the assessment year 1968-69, covering a period between April 1, 1967, and September 30, 1967, assessment year 1968-69, relating to a period October 1, 1967, to March 31, 1968, and assessment year 1969-70. Assessee is a firm carrying on business on wholesale basis in potato and onion, both in its own trading account and as a commission agent to parties outside the State of Orissa. The Income-tax Officer while examining the accounts of the assessee for these three periods was not prepared to accept the book results and accordingly made addition of Rs. 30,000 to the first period, Rs. 20,000 to the second period and Rs. 25,000 to the last period which on the period which on the whole constituted about 2 per cent, of the sale price.
Assessee carried appeals before the Appellate Assistant Commissioner essentially canvassing against rejection of accounts and having failed before him to obtain any relief carried second appeals to the Tribunal wherein it raised, inter alia, the following grounds :
'(i) For that the appellant having maintained all books of accounts in the most flawless manner, the learned Appellate Assistant Commissioner could not have sustained the addition made in the trading account on the facts and in the circumstances of the case.
(ii) For that the reasons given by the Income-tax Officer and confirmed by the Appellate Assistant Commissioner for rejection of trading accounts are based on mere surmises and are in fact far from reality.'
Before the Appellate Tribunal, the assessees counsel instead of focusing the attention on rejection of accounts tried to contend that the rates adopted were high. The Appellate Tribunal declined to entertain such a contention saying that there was no pointed ground raised in appeal. Thus, the assessees attempt to get reduction in the estimate failed.
Grievance has been made before us that the grounds of appeal were capable of taking within them a contention in regard to the challenge of the rate of profit and the Tribunal went wrong in rejecting entertainment of the contention being of the view that such a contention was not admissible on the terms of the memorandum of appeal. Before us, Mr. Pasayat, for the assessee, has conceded that it is not a case where rejection of accounts can be challenged and, therefore, the assessee having realised this position was seeking to canvass before the Tribunal that the rate of profit would be reduced. On reading the grounds as indicated above, we think a two-fold attack was raised against the Income-tax Officers orders, namely, disputing the rejection of accounts on the ground that accounts were flawless as also disputing the addition. Now that Mr. Pasayat concedes that rejection of accounts is not open to dispute, the only question for examination is whether the Tribunal was correct in holding that the grounds did not permit the rate of profit to be disputed.
Having heard learned counsel for the parties, we are inclined to agree with Mr. Pasayat that the grounds were so framed that they did admit a dispute in relation to the reasonableness of the rate of profit and, therefore, the Tribunal was not correct in rejecting the contention as not tenable. It is conceded by both sides that such a question has not been examined on merits and, therefore, once we answer in favour of the assessee, it would follow that the appeals have to be reheard and disposed of on merits in accordance with law. Our answer to the question, therefore, is :
On the facts and in the circumstances of the case and in view of the grounds raised in the memorandum of second appeal, the Tribunal was not justified in saying that the assessee had not raised any specific ground as to the reasonableness of the rate of profit applied to the cases.
We make no order as to costs.
N. K. DAS J. - I agree.