Law: Income Tax Act, 1922

Section: 3,4,13

Income tax Act (XI of 1922), Ss. 3, 4 & 13 Income Time of receipt No account of stock Receipt brought to accounts as and when sale made Excess sale and closing stock Whether could be regarded as the income of the accounting year. The question as to when exactly an assessee can be said to have received certain income or profits has to be largely deter¬mined with reference to the system of accounting employed by him. Where an assessee brought into account the sales made by him but neither maintained an account of the stock, nor took an inventory of the stock on hand; Held, that as the assessee treated an income as received only as and when he sold his stock, the Income tax Officer was justified in regarding excess sales and closing stock revealed in the accounts of an accounting year as the income of the assessee for that year. JUDGMENT CHANDRA REDDY, C. J. The questions referred to this Court under section 66 (2) of the Indian Income tax Act are these; "(1) Whether there is material to hold that Subbarao purchased the stock in question and suppressed them in the accounts of the previous years ? and (2) If they were suppressed stock, could the petitioner be assessed on the basis of suppressed stock for the accounting year 1942 43?" This reference arises out of the assessment made on Jaldu Anantha Raghuramayya, alias Ramarao, adopted son of one Jaldu Venkata Subbarao, who was carrying on business in timber. Venkata Subbarao died on 22nd June, 1942. Soon after his death, the executors and trustees took over the management of his estate. During the assessment proceedings for the year 1943 44, the examination of the accounts of the Masulipatnam timber depot produced by the executors revealed excess sales and closing stock of the value of Rs. 75,073. When called upon to explain the excess sales and closing stock, the executors could not give a satisfactory explanation. They contented themselves by saying that all the accounts and records were already produced and the contentions on their behalf were put forward at the time of the original assessment. In that state of affairs, a sum of Ps. 75,073 representing the excess sales and closing stock was added to the book…

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