Law: Income Tax Act, 1922

Section: 13

Income-tax----Accounting---Rejection of Accounts---When proper---Effect of omission to keep stock register---Cotton ginning business---Omission to keep day to day register of factory work---Yield lower than previous years---Application of flat rate---Legality---Indian Income-tax Act, 1922, S.13 proviso. The view that if accounts are prima facie regularly and properly kept and the Income Tax Officer cannot find any particular flaw in the method of accounting; he is bound to accept the profit disclosed by such accounts is not correct. The effect of such a view would be that if any assessee produces a plausible set of regularly kept accounts the Income Tax Officer is powerless to do anything about the profit shown therein. The correct view is that he is not bound to compute the income, profits and gains in accordance with the method of accounting regularly employed by the assessee, if that method in fact does not show the true income, profits and gains. Pandit Bros v. Commissioner of income-tax (1954 26 ITR 159) does not lay down as a proposition of law that the want of a stock register by which a proper check could be made is not such a serious defect as to make the proviso to section 13 inapplicable. It is for the Income-tax authorities to consider all the materials which are placed before them and if after taking into account in any case the absence of a stock register and other materials they are of the opinion that correct profits and gains cannot be deduced from the accounts kept by the assessee then they would be justified in applying the proviso to section 13. In a business which merely consists of buying raw material and selling it after processing, the absence of a register showing the daily working of each factory is just as material as the absence of a stock register in the case of an ordinary merchant. The account books of the assessee who carried on the business of ginning cotton showed that the yield of cotton was low in the accounting year compared with the earlier years. The explanation of the assessee was not believed by the Income Tax Officer, and relying upon the low yield and the fact that the assessee had not kept any register from day to day…

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