Law:

Section:

Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income-tax Act, 1922] - Method of accounting - Rejection of accounts - Assessment year 1950-51 - Assessee, a purchasing agent for procurring foodgrains, due to some difficulty in collecting foodgrains from cultivators, purchased it from open market - Accounts maintained by assessee showed net loss under food grains business - ITO rejected books of account by applying proviso to section 13 of 1922 Act and estimated income - Whether on facts, it could not be said that income of assessee could not be deduced from accounts maintained by him - Held, yes - Whether, therefore, proviso to section 13 of 1922 Act was not applicable - Held, yes FACTS The assessee was carried on the business in food grains. There was a scheme for collecting grains for the Government under the Grain Procurement Order of 1944. Cultivators had to bring their quotas of food grains to kacha arhatias, who held licences for the purpose. Kacha arhatias brought the grains so collected to purchasing agents appointed by the Government for the purpose. The assessee was such a purchasing agent for procuring foodgrains. There was some difficulty in collecting foodgrains from cultivators. The assessee, therefore, purchased foodgrains from the open market. The difference in the price in open market and the sanctioned purchase price was known as 'tota money'. For the assessment year 1950-51, the assessee had shown certain loss under the aforesaid business. The ITO did not accept the accounts furnished by the assessee by applying proviso to section 13 of 1922 Act and estimated the net income of the assessee from foodgrains businesss. On appeal, the AAC as also the Tribunal confirmed the assessment completed by the ITO. The application under section 66(1) of the 1922 Act was dismissed. On application under section 66(2) : HELD The proviso to section 13 of the 1922 Act is applicable under two circumstances. Firstly, there may be a case where the assessee has not followed any regular method of accounting. Secondly, the accounts may be in such a condition that income cannot properly be deduced from the accounts maintained. In the…

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