JUDGMENT

SHAH J.-In their return of income for the assessment year 1951-52 the respondents, Messrs. K. Y. Pilliah & Sons, declared Rs. 18,679 as their income from business. The Income-tax Officer discovered that in the business of purchasing and selling cloth carried on by the assessees the gross profits from the turnover disclosed by them worked out at 3.8% while in the case of other merchants carrying on similar business in the same locality it worked out at 6 to 7%, that the relevant vouchers for purchases by the assessees of goods were not produced, and that in respect of those transactions, besides the entries in the books of account, there was no evidence of actual payment of credit purchases. The Income-tax Officer was, therefore, of the view that the " purchases remained unproved ". Thereafter, he made detailed enquiries and found that the assessees had been selling cloth in the name of Bhuvaneswariah, son of K. Y. Pilliah, principal partner of the assessees, and in the name of Veerabhadrappa, their accountant. These sales were also not entered in the books of account. The explanation of the assessees that these were " accommodation sales to oblige weavers", in respect of which the assessees made no profit, was rejected. It was found that the assessees had effected sales in the accounting period of the value of Rs. 73,065-7-0 in the name of Bhuvaneswariah and of the value of Rs. 31,966-5-0 in the name of Veerabhadrappa. It also appeared that there were sales to Messrs. Hameedia Cloth Stores and T. Venkataram of Trivandrum, but the exact magnitude of those transactions could not be ascertained.

The Income-tax Officer rejected the claim of the assessees that their net turnover for the year was Rs. 9,42,524-8-9, and estimated the turnover at Rs. 12 lakhs and estimated their gross profit at 6.5% on the estimated turnover.

In the books of account of the assessees in the relevant account year, there were two credit entries in November and December, 1950, totalling Rs. 7,000 in the name of one Sampangappa. Sampangappa was examined by the Income-tax Officer. He admitted that he was not in a position to advance any amount at the relevant time. The Income-tax Officer treated Rs. 7,000 as the assessees income from undisclosed sources.

The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. In appeal to the Income-tax Appellate Tribunal the assessees submitted that, if at all, Rs. 1,05,031-12-0 being the aggregate of the amounts for which transactions of the assessees in the names of Bhuvaneswariah and Veerabhadrappa were proved could be added to the turnover returned by them, and that there was no warrant for estimating the total turnover at Rs. 12 lakhs. It was also contended that the cash credit entry of Rs. 7,000 should have been held attributable to the " secreted profits " in the transactions which were not entered in the books of account. In rejecting that plea, the Tribunal observed that the assessees were " in the habit of suppressing not only sales but the corresponding purchases as well, so that the full extent of the business is not made known to the income-tax authorities. It was stated before the Income-tax Officer that certain sales did not pass through the books of account because the assessee wanted to save sales tax. Before the Appellate Tribunal the assessee did not persist in his contention that the sales were not suppressed. The only contention raised by the assessee was that the estimated turnover made was excessive. Since the income-tax authorities have been able to establish suppression of sales of over a lakh of rupees, in the view of the Tribunal it would be impossible to interfere with the estimate of Rs. 12 lakhs being the turnover of the assessee ". The Tribunal accordingly rejected the contention of the assessees about the rate of gross profit estimated by the Income-tax Officer and also rejected the contention that the entry of Rs. 7,000 in the assessees books represented "