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Section:

Section 145 of the Income-tax Act, 1961 - Method of accounting - Rejection of accounts - Assessment years 1964-65 and 1965-66 - Whether even if assessee regularly employs a well-recognised method of accounting, ITO must discard it and must compute income upon a basis, if method does not show correctly profits of year - Held, yes - Assessee was carrying on business in purchasing and selling of fish - Finding that assessee did not maintain proper accounts of stock of fish received and sold at various centres revenue authorities rejected its accounts and estimated profit - Report of Board of directors with comments of chartered accountant indicated that there was no proper control over fish stock sold through different concerns and that there was no system of internal check in vogue - Whether though assessee was Government sponsored concern, it was expected to keep its accounts like any other ordinary assessee and revenue was perfectly justified in scrutinising its accounts like accounts of any other concern, irrespective of its object or status - Held, yes - Whether, therefore, in absence of proper stock account, accounts of assessee were liable to be rejected and estimate could be adopted by resorting to section 145 - Held, yes FACTS The assessee-corporation carried on trading in fish. It was purchasing fish from different places and was selling the same. The ITO on examination of the accounts produced by the assessee noticed that the sale of fish out of purchases made from one centre were invariably entailing loss because of alleged shrinkage, shortage and wastage in transit. He, therefore, held that though the assessee was aware of this loss from first few transactions, yet it continued running the business at a loss all the year through, and that it did not maintain proper accounts of stock of fish received and sold at different centres. Accordingly, he rejected the books of accounts and estimated the gross profit at 20 per cent. On appeal, the AAC found that the assessee had not maintained the stock records in a manner as to indicate therefrom the extent of shortage caused and, therefore, held that the claim of shortage was excessive and unreasonable. Over…