Law:

Section:

Section 145 of the Income-tax Act, 1961 (Corresponding to section 13 of the Indian Income-tax Act, 1922) - Method of accounting - Valuation of stock - Assessment years 1960-61 and 1961-62 - On a scrutiny of assessee's accounts, ITO found certain discrepancies between stock account and stock declaration given by assessee to bank - Assessee's explanation was that stock in hand were actually inflated for purpose of getting a higher loan from bank - ITO did not accept assessee's explanation with regard to discrepancies in stocks and accordingly estimated income from transactions outside books and added same to total income of assessee - On second appeal, Tribunal holding that variation in stock was very large, affirmed order of ITO - Whether since Tribunal had chosen to give estimate after giving due allowance for probable inflation which assessee could have made, it could not be said that there was no material for Tribunal to hold that there were unaccounted stocks - Held, yes - Whether, therefore, impugned order passed by Tribunal was to be affirmed - Held, yes FACTS The assessee carried on business in ginning and sale of cotton. In course of assessment, the ITO found certain discrepancies between the stock account and the stock declaration given by the assessee to the bank. On being confronted, the assessee explained that the declaration to the bank was made only on a rough estimate of the stock without any physical verification. It was also stated that the assessee inflated the stock of cotton seeds for the purpose of obtaining a higher loan from the bank and this was a normal practice resorted to by the ginning factories to cover the loan desired by them. The Income-tax Officer accepted the explanation of the assessee only as regards the discrepancy in the cotton stock, but he did not accept the assessee's explanation with regard to the discrepancies in the stocks of cotton seeds and kappas. He took the view that there must have been large transactions in cotton seeds and kappas outside the books and the income from these transactions had not been accounted for in the books of account. He, therefore, estimated the income from these transactions and added that…

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