Law:

Section:

Section 145(2), read with section 144, of the Income-tax Act, 1961-Method of accounting-Discretion to make best assessment-Assessee showed loss in its business as against gross profit rate of 5 per cent in past years-It did not maintain any proper account books or day-to-day stock particulars-It claimed that it was going to close down its business and, therefore, had disposed of its stock even at no profit-No document to support its said claim-Whether ITO right in rejecting its accounts and in making best assessment-Held, yes Facts For the assessment year 1974-75, in regard to its business of mill-made cloth, the assessee returned a loss whereas in past years it had shown a gross profit rate of 5 per cent. The ITO, in the absence of properly maintained books of account and particularly on account of non-maintenance of day-to-day stock particulars, rejected the assessee's books, and estimated its profits by applying a gross profit rate of 5 per cent in view of past records. On appeal, the rejection of accounts was upheld by the AAC whose order was also confirmed by the Tribunal on second appeal. On reference, it was contended by the assessee that the rejection of its accounts was not justified since it intended to close down the mill-made cloth section and, therefore, was prepared to dispose of the stock even at no profits. Held The fact that the assessee wanted to close down his mill-made cloth section was not borne out by any document. The ITO did not accept this explanation and nor did the Tribunal. In the absence of such reason, it was open to the ITO to discard the book result of loss and to fall back upon the past records. Since the assessment of gross profit was within reasonable limit, supported by records of the assessee itself in respect of other years, the rejection of the assessee's account by the ITO was justified and the latter was justified in proceeding to estimate the sales as well as the rate of gross profit. Editor's note 1. In view of the aforesaid , the High Court did not examine the assessee's further contention that day-to-day stock tallying be came difficult to maintain where specifications of the textile goods were too many and, there…

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