Law: Income Tax Act, 1922

Section: 23(3), 23(4)

Income-tax--Method of accounting - Accepted in prior years-Whether can be rejected in subsequent years-Estimate of income-How to be made-Indian Income-tax Act, 1922, Ss. 13, proviso, 23(3) & 23(4). The accounts of the assessee were accepted in all years up to and inclusive of 1957-58 but in 1958-59 the Income-tax Officer rejected the accounts and applied the proviso to section 13 on the grounds that no day to day dryage register had been maintained and that in another case the yield proposed to be adopted by him was held to be reasonable `by the Tribunal, and added Rs. 32,053 to the income disclosed by the assessee. The Appellate Assistant Commissioner, on appeal, confirmed the applicability of the proviso to section 13 but reduced the addition to Rs. 15,000. The appeal to the Tribunal was dismissed. On a reference: Held, (1) that the method of accounting adopted by the assessee having been accepted by the Department in the previous years and the income computed on that basis, there were not sufficient grounds for applying the proviso to section 13 of the facts of the case ; (2) that even assuming that the proviso was attracted, the income-tax authorities, not having determined any basis or manner of computation of the true income, profits and gains of the assessee-firm, were not justified in arbitrarily adding Rs. 15,000 in round figure to the income of the assessee-firm. Arumugaswami Nadar (C.) v. Commissioner of Income-tax (1961) 42 I T R 237 ; Chhabildas Tribhuvandas Shah v. Commis sioner of Income-tax (1966) 59 I T R 733 (S C) ; Commissioner of Income-tax v. Laxminarain Badridas (1937) 5 I T R 170 (S C) ; Commissioner of Income-tax v. K. Y. Pilliah & Sons (1967) 63 I T R 411 (S C) ; Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax (1955) 27 I T R 126 (S C) ; Harakchand Radhakisan v. Commissioner of Income-tax (1962) 46 I T R 196 ; Namasivayam Chettiar (S. N.) v. Commissioner of Income-tax (1960) 38 I T R 579 (S C) ; Pandit Bros. v. Commissioner of Income-tax (1954) 26 I T R 159 ; Punjab Trading Co. Ltd. v. Commissioner of Income-tax (1964) 531 T R 335 ; Raghubar Mandal Harihar Mandal v. State of Bihar (1957) 8 S T C 770 and veeriah…