Law:

Section:

Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income-tax Act, 1922] - Method of accounting - Rejection of accounts - Assessment years 1953-54 to 1957-58 - ITO found discrepancy in accounts for single assessment year only - However, on basis of said discrepancy he rejected all books of account and made additions for all relevant assessment years - AAC upheld order of ITO - Neither AAC or ITO found any mistake in accounts related to other assessment years - No reasons were either given for rejection of accounts by ITO for other assessment years - Tribunal did not examine facts of case afresh but simply adopted findings of AAC - Whether, on facts, additions made were not in accordance with law and they were made arbitrarily - Held, yes FACTS The assessee-HUF carried on the business in various items including money lending. The ITO had found discrepancy in the account books of one assessment year only. The ITO rejected all the books of accounts and made the additions for all the relevant assessment years. On appeal, the AAC confirmed the order of the ITO. On second appeal, the Tribunal confirmed the order of the AAC. On reference, the High Court set aside the order of the Tribunal. On appeal to the Supreme Court: HELD Neither the AAC nor the ITO found any mistake in the accounts relating to other accounting years. The two mistakes noticed by the AAC were insignificant mistakes. They afforded no basis for rejecting the accounts for the other years. Both the ITO as well as the AAC arbitrarily added to the total income returned half the amount of gross receipts shown by the assessee under the head 'interest' during each year as escaped income. The Tribunal did not examine the facts of the case afresh. It just adopted the findings of the AAC. On the facts found by the Tribunal, it was not justified in holding that the additions made by the ITO were in accordance with law. Those additions were arbitrarily made. No reasons were given to reject the accounts relating to the assessment years 1954-1955, 1955-56, 1956-57 and 1957-58. Further, the method adopted for determining the escaped income appeared to be highly capricious. In the…

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