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Issues: Interpretation of section 145 of the Income-tax Act, 1961 regarding the rejection of accounts based on the method of maintaining them.
Analysis: The case involved a reference under section 256(2) of the Income-tax Act, 1961 to decide the question of law regarding the application of section 145. The assessee, a registered firm, derived income from milling gram and selling milled products during the assessment year 1966-67. The Income-tax Officer questioned the yield of dal and overall weight of milled products as per the assessee's books of account, leading to an addition of undisclosed income. The Appellate Assistant Commissioner partially accepted the assessee's explanation, reducing the estimated dal yield. The Tribunal, however, held that section 145 could not be applied as there was no rejection of the method of accounting in the assessee's books. The Revenue challenged the Tribunal's decision, arguing that the powers exercised by the Income-tax Officer were under subsection (2) of section 145, not the proviso to subsection (1). The court noted that the Tribunal did not consider subsection (2) of section 145 in its decision and directed a fresh consideration based on subsection (2) since the proviso to subsection (1) was not applicable. The court held that the Tribunal erred in applying the proviso to subsection (1) and should have considered subsection (2) of section 145. The reference was answered with a direction for the Tribunal to reconsider the matter based on subsection (2) of section 145. In conclusion, the court clarified the correct application of section 145 in cases where the method of maintaining accounts is not rejected. The judgment emphasized the distinction between subsection (1) and subsection (2) of section 145 and directed the Tribunal to reconsider the matter based on subsection (2) in the absence of the proviso to subsection (1).
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