1974 (12) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Application of the proviso to section 13 of the Indian Income-tax Act, 1922.
2. Rejection of the books of accounts of the assessee-company.

Summary:

Issue 1: Application of the proviso to section 13 of the Indian Income-tax Act, 1922

The primary issue was whether there was any relevant material on which any reasonable person could possibly hold that the true profits of the assessee could not be determined, necessitating the application of the proviso to section 13 of the Indian Income-tax Act, 1922. The relevant assessment year was 1950-51, concerning the branches of the assessee-firm at Madras, Ootacamund, and Coonoor. The Income-tax Officer rejected the books of account of the assessee-company, citing that the income, profits, and gains could not be properly deduced from the books due to the method of accounting employed. This view was upheld by the Appellate Assistant Commissioner and the Tribunal, which noted the absence of stock tallies and identifiable details in sales records. The Tribunal's findings were based on the principle that the absence of stock tallies and identifiable sales details rendered the method of accounting inadequate for deducing true profits, thus justifying the application of the proviso to section 13.

Issue 2: Rejection of the books of accounts of the assessee-company

The Tribunal rejected the books of accounts of the assessee-company on the grounds that the stock tally was not maintained and the gross profit was lower than the previous year. The court emphasized that whether stock tallies could or should have been maintained and vouchers with identifiable details produced are questions of fact for the revenue authorities to decide. The Supreme Court's rulings in S. N. Namasivayam Chettiar v. Commissioner of Income-tax and Chhabildas Tribhuvandas Shah v. Commissioner of Income-tax were cited, establishing that the absence of a stock register or stock tally is a significant defect justifying the application of the proviso to section 13. The court concluded that the Tribunal's findings were conclusive and binding, and there was no material to contradict the opinion of the taxing authorities.

Conclusion:

The court answered Question No. 1 in the affirmative, affirming the application of the proviso to section 13. Question No. 2 was deemed unnecessary in light of the answer to Question No. 1. The assessee was ordered to pay the Commissioner's costs of the reference.