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TMI Blog1971 (3) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... was a very low rate when compared to the profits disclosed by other similar dealers. The assessee has maintained regular books of account, and also a stock book on the basis of number of bags. The Income-tax Officer held that the stock book should have been maintained in terms of weight for a proper verification of the stock. He also found that the addresses of parties given in the duplicate copies of the sale bills were not sufficient for a cross verification. The assessee explained the low rate of profits as being due to the fact that he had to sell the rice on certain occasions at a loss due to fall in the market ; and he attempted to substantiate it by sale bills. But the Income-tax Officer did not accept that explanation, since the sale bills could not be related to any particular purchases. The assessee expressed his inability to tally the stock in terms of weight on the basis of the entries in the stock book. The Income-tax Officer held, for the above reasons, that the accounts did not reflect the real state of affairs. He estimated the turnover as Rs. 11,70,000 and the gross profit at 2% . This resulted in an addition of Rs. 10,035 to the income returned by the assessee. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the true interpretation of section 145 of the Income-tax Act, 1961, and its application to the facts of the case. This section corresponds to section 13 of the Indian Income-tax Act, 1922. Section 145 of the 1961 Act reads : " 145. Method of accounting.-(1) Income chargeable under the head 'Profits and gains of business or profession ' or ' Income from other sources ' shall be computed in accordance with the method of accounting regularly employed by the assessee : Provided that in any case where the accounts are correct and complete to the satisfaction of the Income-tax Officer but the method employed is such that, in the opinion of the Income-tax Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine. (2) Where the Income-tax Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the Income-tax Officer may make an assessment in the manner provided in section 144." Section 13 of the 1922 Act reads : " 13. Method of accounting.-Income, profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct nor complete; and sub-section (2) of section 145 applies. Therefore, the question for consideration is whether there are any materials for holding that the accounts are not correct or complete. The Income-tax Officer stated three grounds for rejecting the assessee's books of account ; and they have been affirmed by the Appellate Assistant Commissioner and the Appellate Tribunal. Those grounds are : (i) a low rate of profit when compared to other similar dealers ; (ii) non-maintenance of a stock book on the basis of weight, without which the stock cannot be verified in terms of weight ; (iii) absence of particulars of the addresses of the customers, without which verification of the sales is not possible. According to the assessee, these are not valid grounds for rejecting the accounts, and the book results should be accepted, so long as it is not established that there is any suppression in the turnover, or that any transaction has not come into the accounts. Both parties cited a number of decisions in support of their respective contentions. Counsel for the assessee relied on the decision of the Madras High Court in R. M. P. Perianna Pillai & Co. v. Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bombay High Court in R.B. Jessaram Fatehchand v. Commissioner of Income-tax . In that case, the books of account of the assessee were rejected by the Income-tax Officer on the ground that the assessee was unable to supply the addresses of the customers and the gross profit was low when compared to other traders. The court held that these were not sufficient grounds for rejecting the accounts. In doing so, it stated : " The Income-tax Officer had scrutinised closely the account books of the assessee and had found no fault with them excepting that the addresses of the customers for the cash sales of sugar had not been entered. It was not found by him that there were any other reasons for not accepting the said cash sales, such as, for instance, the sales being at lower rates than what were prevailing in the market or that they were not comparable with the other verified sales, which the assessee had made during the material time. In these circumstances, the reason given by the Income-tax Officer for rejecting the book results shown by the assessee's accounts or for not accepting the cash transactions as genuine cannot be accepted as good and sufficient unless there was an obligat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as the instant case, the keeping of a stock register is of great importance because that is a means of verifying the assessee's accounts by having a ' quantitative tally ' . If after taking into account all the materials including the want of a stock register, it is found that from the method of accounting the correct profits of the business are not deducible, the operation of the proviso to section 13 of the Income-tax Act would be attracted. " Reference has been made in the above case to the decision of the Punjab High Court in Pandit Bros v. Commissioner of Income-tax and after quoting from the said decision a part of the passage which has been herein quoted already, the Supreme Court said : " The want of a stock register was, in that particular case, not a very serious defect because the account books had been found and accepted as correct and disclosed a true state of affairs. It cannot, therefore, be said that that case laid down as a proposition of law that the want of a stock register by which a proper check could be made was not such a serious defect as to make the proviso to section 13 inapplicable. " The above decisions show that the question whether the want of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the assessee, as the finished goods were not accounted in weight. The High co urt upheld the rejection of the accounts, stating : " If the stocks received be shown in the accounts by one standard and the goods produced from those raw materials be shown by another standard, as has been done in the instant case, it is quite clear that there cannot be any deduction of profits therefrom, and this proposition could not be controverted on behalf of the assessee." The judgment is very brief ; and this is the only reason given for upholding the rejection of the accounts. With great respect, it has to be stated that there is an over-simplification of the real question that arises for consideration. What is relevant to consider in such cases is whether the assessee's accounts are maintained according to the method regularly employed by him, whether they are correct and complete, and whether the income can be properly computed from the accounts. Absence of a stock register is not by itself a ground to reject the accounts. If a producer buys raw materials by weight, and he sells his products by length, the stock register, in respect of the purchases, can only be by weight, and, in res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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