Law:

Section:

Section 145 of the Income-tax Act, 1961 - Method of accounting - Rejection of accounts - Assessment year 1966-67 - Whether where there was no finding that any of entries in books of account of assessee was not correct, that assessee was not employing method of accounting, that such method of accounting had been irregularly employed by assessee, and that trading results could not be deductible from entries of book of accounts, Tribunal was not justified in rejecting book profit shown by assessee - Held, yes FACTS The assessee derived income form the sale of country liquor. For the relevant assessment year the assessee filed a return showing a total turnover on account of the sales and a net profit which came to about 1.5 per cent. The ITO on examination of the account books, found three defects relating thereto ; (1) that the sales were not verifiable in the absence of cash memos, (2) that they were noted in lump sums, and (3) that the drawings of personal expenses shown by the assessee during the year seemed to be inadequate. The ITO in these circumstances rejected the books profits shown by the assessee, estimated the sale at higher figure and a rate of 2.5 per cent on net profit was assessed. The AAC as well as the Tribunal affirmed the view of the ITO. The application under section 256 was rejected by the Tribunal. On application under section 256(2) : HELD The assessee had produced all his books of account before the ITO, which had been duly examined by him and the defects as pointed out by the Tribunal with regard to a previous year were not all found by the ITO. The only two defects found by the ITO, for rejecting the book profits or the trading results were that in the absence of cash memos, the sales were not verifiable and that certain transactions were noted in lump sums. No finding had been recorded by either of the lower authorities as to the unacceptability of the method and irregularity of the account kept by the assessee. It is well-settled that in the absence of such a finding recorded by the authorities, the book results cannot be ignored or brushed aside. All the lower authorities including the Tribunal had resorted to the provisions of the…

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