1951 (8) TMI 19 - HC - Income Tax

Summary

Issues:
- Application under Section 66(1) of the Indian Income-tax Act for the Income-tax Appellate Tribunal to state a case and refer it to the High Court under Section 66(2).
- Question of law regarding the justification of applying the proviso to Section 13 of the Income-tax Act based on the sufficiency of the accounting method employed by the assessee.

Analysis:
The case involved two applications under Section 66(1) of the Indian Income-tax Act, seeking the Income-tax Appellate Tribunal to state a case and refer it to the High Court under Section 66(2). The central question was whether there was sufficient material or evidence to discard the book version of profit and justify the application of the proviso to Section 13 of the Income-tax Act. The contention was that the assessee followed a regular accounting system, and profits could be deduced from the books, challenging the arbitrary application of the proviso in this case.

The judgment highlighted that the Income-tax Officer's opinion plays a crucial role in applying the proviso, as the officer's judgment is entitled to great weight unless it is arbitrary. The officer's inability to deduce profit and loss properly from the accounting system allows for invoking the proviso. The officer's action should have some foundation, and if there is any material or good ground for such action, the application of the proviso cannot be questioned.

The Income-tax Officer, in this case, observed deficiencies in the accounting method used by the assessee, such as inaccuracies in maintaining stock records and lack of detailed qualitative information. The Appellate Assistant Commissioner and the Appellate Tribunal also found the accounting method inadequate for deducing profits accurately. The High Court emphasized that the sufficiency of accounts for this purpose is within the officer's judgment, subject to appeal, and since the appellate authorities were not satisfied with the assessee's case, the court had to accept their decision.

Ultimately, the High Court concluded that no question of law arose in this case, as the proviso leaves the sufficiency of accounts to the officer's judgment. The court cannot substitute its judgment for that of the Appellate Tribunal, especially when there is a foundation for applying the proviso. The applications were dismissed, and the decision of the appellate authorities regarding the inadequacy of the accounting method was upheld.