TMI Blog1979 (10) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... hases and cash sales were not verifiable and that no day-to-day production and manufacturing record had been maintained. Accordingly, he invoked the proviso to s. 145(1) of the Act and on the basis of the milk purchases and sugar consumed as also the past record, he worked out the shortage in production at 76,376 kgs. and thus made an addition in the sale price of loose condensed milk at Rs. 2.65 per kg. On appeal, the AAC took the yield of condensed milk at 25 per cent. as against 35 per cent. of raw milk taken by the ITO. He further allowed two per cent. as wastage on sugar. The shortage thus came to 19,077 kgs., the value of which was taken at Rs. 50,000 in round figure at the average selling rate of Rs. 2.65 per kg. The assessee was thus given a relief of Rs. 1,51,000. Both the assessee and the department preferred appeals against the decision of the AAC. In the department's appeal the Appellate Tribunal took into consideration the fact that for the first three assessment years, that is, 1962-63 to 1964-65, the assessee did not maintain any accounts and the assessments were made on estimate. As for 1965-66, the matter was still pending. The ITO had not pointed out any paral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plete or defective, his accounts could not be rejected. After hearing counsel for the parties at some length we find ourselves unable to agree with the submissions made before us by Dr. Bhatnagar. Section 145(1) reads as under: (1) Income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall be computed in accordance with the method of accounting regularly employed by the assessee : Provided that in any case where the accounts are correct and complete to the satisfaction of the Income-tax Officer but the method employed is such that, in the opinion of the Income-tax Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine. This sub-section days down that in computing the profit under the head "Profits and gains of business or profession " or " income from other sources", the method of accounting regularly employed by the assessee should form the basis. In the present case it cannot be said that the method of accounting employed by the assessee in the year under consideration had been regularly employed by him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method of accounting, is not bound by the figure of profits shown in the accounts. The same view was taken by the Supreme Court in S. N. Namasivayam Chettiar v. CIT [1960] 38 ITR 579 and it was laid down (p. 588): " ......the Income-tax Officer, even if he accepts the assessee's method of accounting is not bound by the figure of profits shown in the accounts. It is for the income-tax authorities to consider the material which is placed before them and, if, after taking into account in any case the absence of stock register couple d with other materials, they are of the opinion that the correct profits and gains cannot be deduced, then they would be justified in applying the proviso to section, 13." In CIT v. K. Y. Pilliah and Sons [1967] 63 ITR 411 (SC) upon making detailed enquiries the ITO discovered that the assessee had carried out transactions outside the books. He, therefore, rejected the figures disclosed in the accounts as unreasonable because they did not include sales kept out of the accounts and, secondly, the gross profit disclosed was wholly inadequate in the light of profits disclosed by other dealers in the same business. The Supreme Court confirmed) the findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the method of accounting adopted by the assessee had been accepted by the department in the previous years and no sufficient grounds had been made out for applying the proviso to s. 13 to the facts of the case. This case also is clearly distinguishable on facts. The next case to which our attention was invited is a decision of the Bombay High Court in R. B. Bansilal Abirchand Spinning and Weaving Mills v. CIT [1970] 75 ITR 260, wherein it was laid down that the proviso to s. 13 can be applied only after a finding is recorded as to the unexplainability of the method and irregularity of the accounts kept. In that case, the main reason for rejecting the accounts was that the percentage of dead loss of cotton was high in a particular year. We do not think that that decision can help the assessee's case because here a finding has been recorded that the accounts are not complete and correct inasmuch as there is no day-to-day manufacturing or production account maintained and secondly that the percentage of yield of condensed milk is also low. In St. Teresa's Oil Mills v. State of Kerala [1970] 76 ITR 365 (Ker) the disparity in the consumption of electricity was held as not sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X
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