ORDER
B.M. Kothari, A.M
The first ground raised by the assessee is with regard to trading addition of Rs. 12,789.
2. The learned counsel appearing on behalf of the assessee submitted that the assessee had closed her business at the end of the relevant accounting year. She transferred the closing stock of her business amounting to Rs. 4,26,300 to sole proprietorship concern belonging to her son, which was styled as M/s Rajendra Kumar Mahendra Kumar at no profit no loss basis. The assessing officer has erred in estimating profit @ 3 per cent thereon and he has thus made an addition of Rs. 12,989 in the declared profits. The learned counsel contended that it was the trader’s decision to dispose of the closing stock at cost without charging any profit to her son. There is no provision in the law which obliges a trader to charge profit or make income out of their trading transactions. He also invited my attention to the details of comparative position of gross profit submitted at page 1 of the paper book. The details furnished in the chart shows that after excluding the sales made by the assessee at the time of winding up of her business amounting of Rs. 4,26,300 and the sale made at low profit rate of 3 per cent amounting to Rs. 2,42,512 out of total turnover of Rs. 17,96,723, the assessee has earned gross profit of Rs. 1,17,733 on balance sales of Rs. 11,27,911. This gave a gross profit rate of 10.5 per cent as against gross profit rate of 8.91 per cent in assessment year 1988-89 and 9.96 per cent in assessment year 1989-90. The learned counsel thus strongly urged that the addition made by the assessing officer in the gross profit should be deleted.
3. The learned Departmental Representative strongly relied upon the reasons mentioned in the assessment order as well as in the order of the Commissioner (Appeals). He submitted that the assessee has sold her entire stock at the time of closure of business to her son’s business concern and thereby she has diverted her profit in favour of her son. This is a clear attempt of tax avoidance. The assessing officer was, therefore, fully justified in charging tax on most minimum rate of 3 per cent gross profit applied by him on such sales. No relief on the facts of the present case would be justified.
4. I have considered the submissions made by the learned representatives of the parties and have gone through the orders of the authorities below. It is well settled law that tax can be levied only on real income and not on any hypothetical or notional income. The assessing officer has not disputed the reality and genuineness of the business transaction carried out by the assessee by way of transfer of her stock at the time of closure of her business to the sole proprietorship concern belonging to her son. Once the genuineness of this transaction has been accepted by the assessing officer there is no justification on the part of the assessing officer to estimate any notional or hypothetical income on such transaction. There is no material or evidence on record to prove that the assessee has charged any profit @ 3 per cent as assumed by the assessing officer on the transfer of her closing stock to her son. The law does not prohibit any trader to make income on trading transactions. Even if an assessee who could earn an income, but chooses not to earn the same, cannot be made liable to pay tax on any such income which he could earn but has chosen not to earn. The explanations given by the assessee before the learned departmental authorities are absolutely valid and justified. On the facts and circumstances of the case, I do not find any justification for sustaining the addition of Rs. 12,789 made by the assessing officer. The assessing officer is directed to delete the same.
5. The next ground relates to confirmation of disallowance of Rs. 1,000 out of total disallowance of Rs. 3000 made by the assessing officer. After considering the submissions made by the learned representatives of the parties I do not find any justification to interfere with the view taken by the Commissioner (Appeals). The confirmation of disallowance to the tune of Rs. 1,000 made by the Commissioner (Appeals) is therefore held to be justified.
6. In the result the appeal is partly allowed.