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Issues Involved:
1. Applicability of the proviso to section 13 of the Indian Income-tax Act. 2. Inclusion of Rs. 12,174 paid as sales tax in the income of the assessee. Issue-wise Detailed Analysis: 1. Applicability of the Proviso to Section 13 of the Indian Income-tax Act: The Tribunal and Income-tax authorities applied the proviso to section 13 of the Indian Income-tax Act, which allows the Income-tax Officer to compute income if the profits cannot be properly deduced from the assessee's accounts. The assessee, a private limited company dealing in motor-cycles, cycles, and accessories, was assessed for the year 1950-51 with the accounting year ending on December 31, 1949. The Income-tax Officer found significant defects in the assessee's accounts, including the absence of a stock register, inability to verify stock, and discrepancies in sales and purchases, leading to the conclusion that the profits could not be accurately deduced from the accounts maintained. The assessee argued that the gross profits from the sales of bicycles and motor-cycles could be correctly ascertained from the accounts, and thus, the proviso to section 13 should not be applied. However, the court found no support for this claim in the records. The Income-tax Officer, Appellate Assistant Commissioner, and Tribunal all rejected the accounts as unreliable. The court emphasized that the opinion of the Income-tax Officer, based on detailed examination of the material, was justified in applying the proviso to section 13. The court also addressed the argument that even if the proviso was correctly applied, the Income-tax Officer should have accepted the profits ascertained from the accounts for bicycles and motor-cycles and only estimated the profits for accessories. The court rejected this, stating that once the proviso is invoked, the Income-tax Officer is not bound to segregate the profits for different items but can make an overall estimate. The Tribunal's estimate of sales at Rs. 9 lakhs and a gross profit rate of 12% was upheld. 2. Inclusion of Rs. 12,174 Paid as Sales Tax in the Income of the Assessee: The second issue concerned whether the Income-tax authorities were right to add Rs. 12,174 paid as sales tax to the income of the assessee, despite it not being realized from customers. The Tribunal's order did not explicitly mention this amount, leading the assessee to file a rectification application. The Tribunal clarified that this amount was considered when they granted a reduction of Rs. 49,500 in the estimated profits. The court accepted the Tribunal's statement that the sales tax amount was factored into the reduction of the gross profit estimate. Consequently, the question of excluding the Rs. 12,174 from the total income did not require separate disposal. Conclusion: The court concluded that the Tribunal was justified in applying the proviso to section 13 and making an overall estimate of the profits. The inclusion of the sales tax amount in the income was also upheld as it was already considered in the Tribunal's profit reduction. The reference was answered accordingly, with the assessee required to pay the costs of the Income-tax Commissioner.
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