Law:

Section:

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 - For assessment year in question, ITO having rejected books of account maintained by assessee proceeded to make 'best ' assessment by estimating gross profits at rate of 17½ per cent on total sales - AAC and Tribunal affirmed ITO's order - Whether since revenue authorities neither stated basis of estimate nor gave opportunity to assessee to rebut that basis, estimate of gross profit made by them could not be sustained - Held, yes FACTS The assessee, a HUF, carried on business in fancy goods, electrical goods, watches, radios, etc. It disclosed a net loss of Rs. 2,049 from the business for the assessment year 1953-54. The books of account were found to be defective and not maintained in accordance with the vouchers, some of which were subsequently found in the possession of the assessee. In the circumstances, the ITO held that the account books were incomplete and unreliable, and thereafter proceeded to make the "best " assessment by estimating the profits on a total sale of Rs. 1,00,000, and the gross profits thereon at 17½ per cent. On appeal, the AAC agreed with the view of ITO. On second appeal, the Tribunal maintained findings of the AAC. On reference : HELD Apart from there being no reasons given for agreeing with the conclusions of the AAC and the ITO, to say that it was open to the department to have added the entire difference in the turnover, i.e., the difference between the turnover estimated and the turnover disclosed to the profits disclosed, was a result which was not based on any principle of accountancy or law. The plethora of decisions of the High Courts of this country, as affirmed by the Supreme Court, have consistently insisted upon the income-tax authorities stating the basis of the estimate and their giving an opportunity to the assessee to rebut that basis. But this principle had not been kept in view. Merely to make an estimate and say that it was reasonable, apart from the fact that it did not disclose the basis for arriving at that conclusion was capricious.…

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