Law: Income Tax Act, 1922

Section: 13

Law: Income Tax Act, 1922

Section: 13

Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income-tax Act, 1922] - Method of accounting - Estimation of profit - Assessment year 1953-54 - Assessee was a firm carrying on business in manufacture and sale of manure mixture and also purchase and sale of fertilizers - For assessment year 1953-54, while inspecting assessee's account books, ITO found various defects in stock register and considered that gross profit arrived at by assessee was low when compared with sales of another merchant doing similar business - ITO, thus, held that account books maintained by assessee did not show true income of business - He, accordingly, took comparable case and estimated higher gross profit - Whether even though true percentage to be adopted would depend upon ITO's experience gained by similar assessment during course of assessment year and in previous year and percentage of profits made by traders in that particular line of business, he could not increase rate of percentage of gross profit of compared case by an estimate and on that estimate he could not arrive at an estimated gross profit in case of assessee - Held, yes - Whether since, it was not a case where ITO adopted a flat rate percentage on estimated turnover of business, but, a case of an estimate on estimate, method adopted by ITO was a wrong method and, therefore, additions made to income of assessee was not justified - Held, yes FACTS The assessee was a firm carrying on business in the manufacture and sale of manure mixtures and also purchase and sale of fertilisers. For the assessment year 1953-54 the assessee showed the gross profit on sales of 13.6 per cent. During the course of the inspection of the account books, the ITO found various defects in the stock register, etc., and he considered that 13.6%, the gross profit arrived at by the assessee, was low when compared with not only the sales of another merchant doing similar business but also the assessee's own results for the previous assessment year 1952-53, and held that the account books maintained by the assessee did not show the true income of the business. The ITO took the comparable case and arrived at a figure…

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