JUDGMENT
Ajit K. Sengupta, J.
1. In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1982-83, the following question of law has been referred to this court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the addition of Rs. 31,056 ?”
2. Shortly stated, the facts are that the assessee is a wholesale dealer in solid spices. The total turnover for the assessment year 1982-83 was shown at Rs. 9,46,817 with a gross profit of Rs. 63,628 and the rate disclosed was 6-7 per cent. The Income-tax Officer has found that although the books of account were maintained, no day-to-day stock analysis was found. The Income-tax Officer also cited a comparable case of a dealer who, according to him, had dealt in 1982-83 in powder spices as well as in solid spices and had shown 23.2 per cent. gross profit for powder spices and 22.2 per cent. for solid spices. The Income-tax Officer, basing his judgment on the said case, had rejected the book version of the profit of the assessee and applied a flat rate of 10 per cent. over the total turnover disclosed and added a sum of Rs. 31,056.
3. Against the said addition, the assessee preferred an appeal before the Deputy Commissioner (Appeals) who deleted the addition by observing as follows :
“I have considered the contention of the appellant and the reasons recorded by the Income-tax Officer. On the facts and circumstances of the case, it will be fair and reasonable to delete the addition of Rs. 31,056.”
4. The Department came in appeal before the Tribunal against the said decision of the Deputy Commissioner (Appeals). The Tribunal has laid stress on the comparable case cited by the Income-tax Officer in his order showing a higher rate of gross profit. It was argued before the Tribunal that the comparable case cited was not shown or discussed with the assessee prior to the cancellation of the trading results and as such it was argued that natural justice had been violated and the assessment under Section 143(3) had been vitiated. The Tribunal, after discussing that argument, had stated that the Income-tax Officer, on the basis of the case cited, had come to the conclusion that the profit shown by the assessee was low. Therefore, the Tribunal confirmed the addition made by the Income-tax Officer at Rs. 31,056.
5. At the hearing before us, Mr. Roy Chowdhury has contended that the action of the Assessing Officer or the Tribunal was not justified inasmuch as the officer relied on comparable cases but did not disclose the cases or bring to the knowledge of the assessee the facts in those cases prior to the cancellation of the trading results as per the books. He has submitted that, since the finding was arrived at by the Assessing Officer in violation of natural justice and such finding having been confirmed by the Tribunal, that finding should be set aside.
6. It is true that the Income-tax Officer can rely on such materials but he has to disclose such material to the assessee before he makes any order of assessment ; otherwise, it will be difficult for the assessee to meet the same. In this case, the following question was raised by the assessee :
“Whether, on the facts and circumstances of the case, the Tribunal is correct in justifying the action of the learned Income-tax Officer for relying on a comparable case which was not discussed or brought to the knowledge of the assessee prior to cancellation of the trading results as per books which have been maintained regularly ?”
7. The question was, however, formulated by us differently as indicated earlier. Here, the question arises whether the assessee is entitled to urge the question of violation of the principles of natural justice, there being failure to disclose to the assessee the comparable case going to be used in framing the assessment so that the assessee could have due opportunity to meet the same. It was submitted by Mr. Roy Chowdhury that the question as reframed in a shorter but broad form by this court has a wide spectrum and the non-observance of the requirement of the principles of natural justice can as well be a necessary ingredient of the question. Mr. Roy Chowdhury also emphasised that such opportunity was all the more necessary in the case in view of the fact that the rate of gross profit interfered with by the Assessing Officer compares favourably with the rates of gross profit disclosed and accepted by the assessee in its earlier assessment. It is his case that the rate of gross profit once accepted for one year should continue year after year and should not be interfered with.
8. The last limb of Mr. Roy Chowdhury’s argument goes to an extreme which we cannot persuade ourselves to accept, but his contention as regards the requirement of prior disclosure of the fact of the material used in the assessment, for the ends of justice, needs introspection. The action of the Income-tax Officer is violative of the legal requirement as contained in Section 142(3) of the Act if indeed the comparable instance guided the estimate of profit. The said sub-section reads as follows :
” (3) The assessee shall, except where the assessment is made under Section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under Sub-section (2) or any audit under Sub-section (2A) and proposed to be utilised for the purposes of the assessment.”
9. It is patent that, in this case, the assessee was not confronted with the comparable instance by the Income-tax Officer. It is seen from the order of the Tribunal that this aspect of the matter was specifically brought to the notice of the Tribunal. The Tribunal, however, observed in that connection in paragraph 4 as follows :
“It was further stated that the Assessing Officer in the assessment order quoted two cases where the profit shown was higher. However, the assessee was not confronted with the materials and, therefore, the materials were used without allowing an opportunity to the assessee and hence that factor should not be taken into consideration.”
10. Thus, it is not that the Tribunal disposed of the appeal oblivious of this particular aspect. The Tribunal was quite conscious of this particular position, yet found that the estimate that the Income-tax Officer has made cannot be said to have been guided by such a comparable case. The Assessing Officer mentioned this particular case merely in passing but, while estimating the profit rate, he applied altogether a different standard going by the facts of the assessee’s case. Therefore, it could not be said that the particular case was used against the assessee merely because of a reference in the order to the case. The reference was for the limited purpose of showing that the low rate of gross profit disclosed, combined with the further circumstances, viz., absence of quantitative tally, justifies the rejection of the book results and the resort to an estimate. Even without this particular comparable instance, the results of the trading could be rejected since the assessee’s books of account are such that no proper profit is deducible therefrom.
11. Another aspect is also notable in the circumstances of the case. The assessee merely rests at contending against the Assessing Officer’s failure to disclose the comparable case before completion of the assessment but even when the case came to the knowledge of the assessee, and the assessee was in appeal before the Deputy Commissioner (Appeals), no attempt was made to show the general trend in the market. Even before the Tribunal, the contention of the assessee was only limited to not having an opportunity to challenge the comparative case but no challenge was, in fact, made to the said comparable instance though by then within the knowledge of the assessee.
12. We would have been impressed with the contentions if the assessee had maintained the stock book showing stock tally. In that case, the accounts being fool proof, no addition could be warranted. There are certain trades, specially in the retail market, where stock tally may be imprac-, ticable and the assessee can reasonably advance the plea that the accounts have been maintained in the best manner possible in the special circumstances of the case. But such is not the case with the assessee. The assessee deals in wholesale spices. Failure to maintain stock accounts is a substantial defect in the accounts justifying an inference that the accounts are maintained in a manner from which the true and correct profits are not deducible. Nor is it contended at any stage that the gross profit rate shown is the market norm.
13. Therefore, in our view, the Tribunal was right in holding that the estimate which was made in the case and the addition made on such estimate was quite reasonable and fair taking a cumulative view of all the factors the case presents. Moreover, the Tribunal’s finding that the assessee’s rate of gross profit is below the market rate which is ten per cent. is a finding of fact which the assessee has not challenged.
14. For the reasons aforesaid, we answer this question in the affirmative and in favour of the Revenue.
15. There will be no order as to costs.
Nure Alam Chowdhury, J.
16. I agree.