Law:

Section:

Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income-tax Act, 1922] - Method of accounting - Estimation of profit - Assessment year 1946-47 - Assessee supplied miscellaneous stores to ships on a fairly large scale - Assessee returned a profit on gross receipts of Rs. 5,83,382 on basis of his books of account - Tribunal found that sales effected by assessee in accounting year approximated to Rs. 5,90,000 and out of which sale of value of Rs. 3,42,183 were so recorded in books of account of assessee that it was possible to assess profits on those sale, however, with regard to balance, viz., Rs. 2,47,817, it was impossible to ascertain what profits were realised by sales effected by assessee - Tribunal accordingly, applied a flat rate of 18 per cent on all sales effected by assessee - Whether, on facts, Tribunal did not adopt a wrong method in assessing profits, nor did Tribunal reject or not take into consideration any evidence which was material or relevant evidence placed before it by assessee - Held, yes FACTS The assessee supplied miscellaneous stores to ships on a fairly large scale. The assessee returned a profit on gross receipts of Rs. 5,83,382 on the basis of his books of account. The ITO found that the sales effected by the assessee in the accounting year approximated to Rs. 5,90,000. Out of these sales, of the value of Rs. 3,42183 were so recorded in the books of account of the assessee that it was possible to assess the profits on those sales. With regard to the balance, viz., Rs. 2,47,817, it was impossible to ascertain what profits were realised by the sale effected by the assessee. The Department assessed the profits of the assessee on an overall basis fixing the profits at 20 per cent on the sale effected by the assessee. However, the Tribunal reduced the rate from 20 per cent, to 18 per cent and applied same on all the sales effected by the assessee,viz., Rs. 5,90,000. On reference : HELD The proviso to section 13 of 1922 Act leaves it to the ITO to compute the profits upon such basis and in such manner as he may determine. Although the discretion is vested in the ITO, the discretion cannot be exercised…

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