Law:

Section:

Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of income - Block period 1-4-1990 to 24-1-2001 - Assessee-company was a manufacturer of hosiery goods and had branches at various places in country - Income-tax Department conducted searches at various places of office of assessee and in course of such-searches, various books of records were seized - Inventory was prepared of stock at some of locations and portion of stock was also seized - Assessing Officer required assessee to furnish value of closing stock at wholesale price of stock and after making certain corrections, same was determined by Assessing Officer at Rs. 33,01,24,963 - It appeared that Assessing Officer sought to estimate cost of said closing stock with reference to wholesale price by deducting therefrom discounts allowed by assessee to its customers and gross profit ratio - Gross profit rate was determined by Assessing Officer at 20.44 per cent - In respect of discounts, assessee worked out average discount allowed on basis of its books of account for financial years 1999-2000 and 2000-01 at 25.53 per cent and 29.13 per cent respectively - On appeal, Commissioner (Appeals) held that Assessing Officer should have accepted discount of 29.13 per cent since books of account were found to be correct - On further appeal, Tribunal held that stock should be valued by showing discount at rate of 27 per cent being average of two years and income should be recomputed accordingly - Whether in absence of any finding that any portion of books of account maintained by assessee was fictitious or contained wrong entry, Assessing Officer was not entitled to make an average of discount without discarding actual discount given by assessee for relevant year as appearing from books of account - Held, yes - Whether, therefore, Tribunal erred in law in modifying order of Commissioner (Appeals) by fixing an average of discount for two years - Held, yes FACTS The assessee-company was a manufacturer of hosiery goods and had branches at various places in the country. The Income-tax Department conducted searched at various places of the office of the assessee and in course of such searches,…

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