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Section 145 of the Income-tax Act, 1961 - Method of accounting - Rejection of accounts - Assessment year 1966-67 - Whether once books of assessee are rejected than profit has to be estimated on basis of available material - Held, yes - Whether, therefore, where Tribunal sustained certain addition to assessee's income which had not been challenged as being perverse, it could be concluded that there was evidence or material before Tribunal to sustain said addition - Held, yes FACTS A business of manufacture of sprayers and dusters for plant protection was being carried on by a firm of seven partners. In May 1965, the assessee-company was incorporated and took over the business from the firm. For the relevant assessment year, the assessee-company declared certain profit calculated at rate of about 15 per cent on total turnover. The ITO found that the assessee did not maintain any day to day stock book, manufacturing accounts, raw material consumption accounts or production accounts. In the absence of the aforesaid, he held that it was not possible to arrive at the correct profits on the figure disclosed by the assessee. Applying section 145(1) he made certain addition on estimate calculating gross profits at the rate of 20 per cent of the total turnover. On appeal the AAC reduced the addition by estimating the profit at 18 per cent. On further appeal, the Tribunal held that there was no material before it to come to a definite finding as to the manner in which accounts were being kept by the assessee. The Tribunal observed that as the sales were vouched, the possible leakage in the accounts could be in the manufacturing costs, where, in view of the turnover, there would not be much scope for such leakage. Considering all the facts and circumstances of the case, the Tribunal reduced the addition. On reference : HELD It was not disputed that the books of account of the assessee were not accepted. That being so, profit had to be estimated. Such estimate was made by the authorities on the basis of the performance of the predecessor-in-interest of the assessee, namely, the partnership firm. On such material, the ITO, the AAC and the Tribunal came to their respective…

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