JUDGMENT
V.S. Desai, J.— The assessee-firm has several kinds of businesses one of which is dealing in sugar on wholesale and commission basis. It makes large purchases from sugar mills known as Simbholi Sugar Mills Ltd., Simbholi, and gets 2 per cent. commission on the sales of sugar pertaining to such purchases. It also purchases sugar from other sources. In the account year of the assessee ended 31st August, 1957, its trading sugar account extended to total sales of Rs. 33,93,351. The gross profits shown in the said account by the assessee was 1.69%. In its trading account there were cash sales of sugar from time to time totalling to an amount of Rs. 3 lakhs during the year and out of these sales, sales to the extent of about Rs. 2 lakhs were through a firm of brokers called "M/s. Mahashankar Ambalal & Co." Since the assessee had made sale transactions in cash, the Income-tax Officer proceeded to scrutinise the said transactions and obtain verification about their genuineness. He selected for that purpose cash sale transactions of the value of Rs. 75,016 effected through the firm of brokers on the 28th August, 1957. Sales of Rs. 16,090 out of the total sales of Rs. 75,016 were credited to the assessee's sugar account and the balance, i.e., sales of Rs. 58,926 were credited to the account of Simbholi Sugar Mills Ltd. On a scrutiny of these transactions, the Income-tax Officer found that the entries made by the assessee in its account books regarding these transactions merely disclosed sales made to certain persons in cash. He, therefore, called upon the assessee to furnish the addresses of the persons in whose names the cash transactions were recorded. The assessee expressed its inability to supply the addresses of the purchasers on the ground that the sales had been effected through brokers and suggested that the addresses may be obtained through the brokers. The Income-tax Officer, therefore, summoned a partner of the firm of brokers through whom these transactions were effected. The said broker, however, also was unable to furnish the addresses of the purchasers on the ground that he did not remember the addresses after so many years and besides the books which he had maintained have been misplaced since the firm had been dissolved and, even if the books were available, there was no practice to enter in those books the addresses of the customers. He stated that he only brought the purchasers in contact with the sellers and the delivery of the goods from the seller was taken directly by the purchasers. The Income-tax Officer did not accept the explanation given by the assessee and the broker for their inability to supply the addresses of the purchasers and, therefore, held that the result shown by the assessee's account books in respect of the cash sale transactions could not be accepted. He, therefore, applied the proviso to section 13 to the case and added some additional profit by estimating the gross profits at 2 per cent. on the total sales in the trading account of the assessee. Accordingly, he made an addition of Rs. 31,440 to the gross profits as shown by the assessee's books of account. The assessee appealed to the Appellate Assistant Commissioner, who disagreed with the view taken by the Income-tax Officer and deleted the addition of the amount. Before the Appellate Assistant Commissioner the assessee produced the Sugar Market Reports for the months of July and August which showed that the sugar market during those months was ruling quiet and the demand for sugar was slack and the spot rates were declining. The assessee contended before the Appellate Assistant Commissioner that at the material time the market was weak ; and the demand was slack so that it was not possible to effect sales at rates higher than the ruling market rates and that not only in respect of the transactions verified by the Income-tax Officer but in respect of all other cash transactions also, which the assessee had effected through the brokers, he had not recorded the addresses of the customers. The mere circumstance, therefore, that the addresses were not entered in the books or were not separately maintained by the assessee was no reason for suspecting the genuineness of the entries especially in view of the fact that there was no obligation or condition requiring the assessee to maintain the addresses of the cash customers. It was also contended that the selling rates as recorded in the books were either equal to or comparable with the market rates as published in the reports or as could be verified from the other sales effected by the assessee. The Appellate Assistant Commissioner accepted these contentions of the assessee and held that having regard to the fact that the Income-tax Officer has not found that any sales have been suppressed from or omitted to be shown in the accounts by the assessee or that they have been shown to have been made at lower rates, the Income-tax Officer was not justified in not accepting the book results as shown by the assessee and in applying the proviso to section 13 to the case. The Appellate Assistant Commissioner allowed the appeal of the assessee and deleted the addition of Rs. 31,440 made by the Income-tax Officer. In the further appeal to the Tribunal by the department, it allowed the department's appeal. According to the Tribunal, having regard to the facts of the case, the assessee had not proved the cash sales in its books and particularly the sales of Rs. 75,000 and odd recorded on 28th August, 1957, and the Income-tax Officer was, therefore, right in not accepting the trading results as per the books and proceed on the application of the proviso to section 13 to the case. It accordingly set aside the order of the Appellate Assistant Commissioner and restored that of the Income-tax Officer. The assessee asked for a reference under section 66(1) but it was refused by the Tribunal. Then on an application to this court under section 66(2) the Tribunal was required to refer the following three questions under section 66(2) of the Indian Income-tax Act:
"(1)
Whether, on the facts of the case, and, in particular, in view of the fact that the sales were at prevailing market rates, there is any evidence for rejecting the book results ?
(2)
Whether the order of the Tribunal is based on suspicion, conjectures and surmises not supported by the evidence ? and
(3)
Whether the order of the Tribunal is vitiated by reason of the fact that they presumed that the sugar was scarce before the crushing season and that, therefore, the price of sugar increased immediately before the crushing season, without asking any questions to the assessee on the point ?"
Now, the Income-tax Officer in not accepting the book results of the assessee proceeded mainly on the ground that in respect of the cash sales entered in the books of account of the assessee the assessee was unable to supply the addresses of the customers to whom sugar was sold. The assessee had supplied an explanation for his inability to do so, but the said explanation was not accepted by the Income-tax Officer. There was no other reason for the Income-tax Officer to discard the book results. He, no doubt, pointed out that it appeared that other wholesale traders in the market had shown a higher gross profit of their turnover but it appears that no explanation had been called for from the assessee in that connection by any questions having been specifically put to him in that connection. The Income-tax Officer had scrutinised closely the account books of the assessee and had found no fault with them excepting that the addresses of the customers for the cash sales of sugar had not been entered. It was not found by him that there were any other reasons for not accepting the said cash sales, such as, for instance, the sales being at lower rates than what were prevailing in the market or that they were not comparable with the other verified sales, which the assessee had made during the material time. In these circumstances, the reason given by the Income-tax Officer for rejecting the book results shown by the assessee's accounts or for not accepting the cash transactions as genuine cannnot be accepted as good and sufficient unless there was an obligation on the part of the assessee to keep a record of the addresses of the cash customers. It could not, therefore, be said that the failure on his part to maintain the addresses was a suspicious circumstance giving rise to a doubt about the genuineness of the transactions entered into by the assessee.
In the case of a cash transaction where delivery of goods is taken against cash payment, it is hardly necessary for the seller to bother about the name and address of the purchaser. In our opinion, therefore, the rejection of the results of the assessee's cash book by the Income-tax Officer was not at all justified and the Appellate Assistant Commissioner, therefore, was right in deleting the addition made by the Income-tax Officer. The Tribunal, it appears, has approached the matter on certain surmises and conjectures. It has referred to what it calls a matter of common knowledge that there is scarcity of sugar in certain months of the year and particularly in the months just before the new crushing season starts, which is in the month of October. Therefore, in the month of August, when the sale of sugar to the tune of Rs. 75,000 and odd was effected by the assessee, there might have been an occasion for the assessee to take advantage of the situation caused by the scarcity of sugar. Assuming that scarcity of sugar sometimes occurs just before the new crushing season starts in October, no such scarcity had occurred at the material time in the present case as is obvious from the Sugar Market Reports produced by the assessee, which show that the demand for sugar was slack and the rates in the market were declining. According to the Tribunal, although the entries in the account books of the assessee appeared to be all right ostensibly, the assessee could not merely rely on the said entries but had further to show that the transactions as entered in these accounts were true and genuine. Since, in the present case, by reason of its failure to give the addresses of the customers, it had failed to establish adequately the genuineness of the transactions, the Income-tax Officer was right in taking the view that the book results shown by the assessee were not acceptable.
In our opinion, the assessee's account books are to be accepted, unless, on verification, they disclosed any faults or defects, which cannot be reasonably and satisfactorily explained by the assessee. All the other transactions, except the cash transactions, which were verifiable, have been verified and scrutinised by the Income-tax Officer and there is nothing wrong whatsoever found with them. As to the cash transactions also, the quantity of sugar sold has not been disputed. The rates at which sugar was sold were not such as would excite suspicion by reason of being lower than the prevailing market rates. The names of the customers are also entered in respect of the transaction. All that is not done is that the addresses are not entered and on enquiry the assessee was unable to supply the addresses. Since, having regard to the nature of the transactions and the manner in which they had been effected, there was no necessity whatsoever for the assessee to have maintained the addresses of cash customers, the failure to maintain the same or to supply them as and when called for cannot be regarded as a circumstance giving rise to a suspicion with regard to the genuineness of the transactions. The Tribunal, therefore, was not right, in our opinion, in setting aside the order of the Appellate Assistant Commissioner and restoring that of the Income-tax Officer. There are no circumstances disclosed in the case nor is there any evidence or material on record which would justify the rejection of the book results.
In the result, therefore, our answers to the questions are as follows:
Question No. 1.—No.
Question No. 2.—Yes.
Question No. 3.—Yes.
The Commissioner will pay the costs of the assessee.