Law:

Section:

Section 145(1) of the income-tax act, 1961-Method of accounting-Assessee-firm derived income from selling country liquor-ITO did not accept its accounts as correct and complete and added Rs. 58,036 in its taxable income ultimately reduced to Rs. 25,082 by tribunal-Whether tribunal right in law in applying provisions of proviso to section 145(1)-Held, on facts, no Facts For the assessment year 1971-72, the assessee-firm had undertaken four country liquor vends at four different places and returned its income at Rs. 76,559. The ITO determined the taxable income at Rs. 1,36,966, after rejecting its accounts in all the four vends because sale rates were not verifiable and correct. On appeal, the AAC reduced the addition from Rs. 58,036 to Rs. 42,422 which was further scaled down to Rs. 25,082 by the Tribunal. It sustained the applicability of the proviso to section 145(1) after observing that the excise registers produced by the assessee only showed quantities of liquor purchased and sold and not its sale price which thus remained unproved. On reference : Held The proviso to section 145(1) would come into play where the income could not be properly deduced from the assessee's accounts which were found to be correct and complete to the ITO's satisfaction. In the instant case, all the lower authorities and the Tribunal did not accept the accounts as correct and complete inasmuch as the sale price of liquor recorded in the account books was not taken to have been correctly mentioned. The Tribunal, therefore, erred in applying the proviso to section 145(1) presumably on the ground that the excise registers correctly showed the quantities of liquor purchased and sold. The said registers were only stock registers. Its account books were not held to be reliable as regards the sale price in three vends. In view of all these findings, the proviso to section 145(1) could not be made applicable. The Tribunal was, accordingly, wrong in holding that the business income could not be deducted from the assessee's accounts because of its method of accounting. Editor's note The High Court returned unanswered the second question as to whether there was any evidence to sustain the…

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