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1934 (9) TMI 1 - HC - Income Tax

Issues:
Assessment under proviso to Section 13 vs. first part of Section 13 based on method of accounting and reasonableness of profits.

Analysis:
The case involved an application under Section 66 of the Income-tax Act against the refusal of the Income-tax Commissioner to state a case arising from the assessment of tax for a specific year. The question referred to the court was whether the assessment should have been made under the proviso to Section 13 or the first part of Section 13. The dispute arose from the Income-tax Officer's refusal to accept the profit shown by the company in its books and his subsequent computation of profits at a higher amount. The Officer justified his decision by stating that the company's trading account was based on an inventory not supported by a stock book, and the profits were unreasonably low, leading him to apply the proviso to Section 13 for assessment.

The court emphasized that while the Income-tax Officer has discretion in determining how profits are computed under the proviso to Section 13, it is a legal question whether there was sufficient evidence to justify his rejection of the company's accounting method in this case. The petitioner's method of accounting, without a stock register, had been accepted by tax authorities before and after the relevant year. The Officer's rejection of profits solely based on reduced rates and absence of a stock register was deemed unjustified. The court noted that the Officer overstepped his role by attempting to dictate business principles, such as the rate of profits on consignments sent to a separate entity and the valuation of closing stock balances.

The court held that there was no valid basis for the Income-tax Officer to assess the petitioners arbitrarily under the proviso to Section 13 in this instance. It was concluded that the Officer's decision lacked substantial evidence to support the deviation from the company's regular accounting method. Therefore, the court answered the question of law in the negative regarding the assessment under the proviso to Section 13 and in the affirmative regarding the assessment under the first part of Section 13. No costs were awarded in the judgment.

 

 

 

 

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