Law:

Section:

Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income-tax 1922] - Method of accounting - Estimation of profit - Assessment year 1957-58 - Whether previous orders of assessment, although they may even be best assessments, would form good material or good evidence for purpose of computing assessment for year in question - Held, yes FACTS The assessee/petitioner firm was engaged in manufacturing of bidis. It followed a peculiar method of accounting based on its policy of charging uniform rates for bidis at all distributing centers. While completing the assessment for assessment year 1956-57, the ITO worked out the margin of profit at 12.5 per cent on sales. The AAC, however, took a view that the margin would come to be 17.2 per cent on sales. The Tribunal opined that there was a contradiction between the basis adopted by the AAC and actual working done by him. Therefore, the Tribunal held that the correct margin would be 17 per cent on sales. In the relevant assessment year also the Tribunal acting on basis of previous order of assessment calculated that margin of profit would be 17 per cent of sales. On reference : HELD The proviso to section 13 of 1922 Act lays down that if the assessee, does not follow the regular method of accounting or if the ITO cannot ascertain the income, profits and gains from the accounts maintained by the assessee, in that event, the ITO has been given the power to adopt such basis as he may determine. The power is wide enough to adopt any basis which may be permissible under the provisions of the Act add, in such cases, it is usually the best assessment in which there is bound to be some arbitrariness. But all the same, it is necessary for that basis that there should be some material before the ITO. He cannot act if there be no material at all. In the instant case it was an admitted fact that the formula of 17 per cent profits was applied to the previous years, i.e., for the assessment year 1956-57, and it was for that reason that the Tribunal adopted that basis for arriving at the figure at 17 per cent margin of profit. The sales effected by the firm were larger in the relevant assessment year than…

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