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TMI Blog1963 (9) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... ties could legally make the assessment under the proviso to section 13 of the Income-tax Act, 1922, for the assessment years 1956-57 and 1957-58?" The case refers to the income-tax assessment of the Punjab Trading Co. Ltd., Bhatinda, for assessment years 1956-57 and 1957-58, the accounting years ending on the 30th June, 1955, and the 30th of June, 1956. Among the business carried on by the company was the running of cotton ginning mills at Nabha and Bhatinda and also in the second assessment year at Patiala. For the years in question the company's accounts were apparently regularly maintained and had been audited by Messrs. D. Bhatia and Company, Chartered Accountants, New Delhi, but the Income-tax Officer in his assessments compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference although other questions had been included in the application. The basic reason for the refusal of the Income-tax Officer to accept the profits shown in the audited accounts of the assessee is contained in the table relating to yield per maund of raw cotton set out in the statement of the case as follows: Yield of Assessment years 1955-56 1956-57 1957-58 Desi Kapas 15 srs. 1 ch. per maund 13 srs. 12 chs. per maund 14 srs. 10 hs. per maund Nabha 14 srs. 8 chs. per maund Bhatinda Narma Kapas 14 srs. 3 chs. per maund 13 srs. 6 chs. per maund 13 srs. 5 chs. per maund-- Patiala 13 srs. 8 chs. per maund-- Bhatinda The Income-tax Officer took into consideration the explanations put forward by the assessee for these low yie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in section 13 which reads: "13. Income, profits and gains shall be computed, for the purposes of sections 10 and 12, in accordance with the method of accounting regularly employed by the assessee: Provided that, if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income-tax Officer, the income, profits and gains 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." It is contended on behalf of the assessee in this case that his accounts had been regularly maintained and properly audited, and moreover accounts similarly maintained and audited had been accepted in to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o section 13. It was held by Addison and Sale JJ. that if there was no evidence to justify the Income-tax Officer's rejection of the method of accounting the assessment should be made under the first part of section 13 and not under the proviso and when there is no other reason except the fact of reduced profit to justify the assumption that profits cannot be deduced from a method of accounting which admittedly has been regularly employed by the petitioner and has been accepted in the past, the use of the proviso to section 13 for the purpose of introduction of an arbitrary manner of computing the profits is not justified. The next case is Pandit Bros. v. Commissioner of Income-tax [1954] 26 I.T.R. 159; A.I.R. 1955 Punj. 42., in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o accept the profit disclosed by such accounts, and the effect of this 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. This, however, is clearly not a correct view of the law as can be seen from the decision in Commissioner of Income-tax v. Sarangpur Cotton Manufacturing Co. Ltd. [1938] 6 I.T.R. 36; A.I.R. 1938 P.C. 1., in which their Lordships observed as follows: "Section 13 relates to a method of accounting regularly employed by the assessee for his own purposes and does not relate to a method of making up the statutory return for assessment to income-tax. The Income-tax Officer is not, prima facie, entitled to acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coupled with other materials they are of the opinion that correct profits and gains cannot be deduced then they would be justified in applying the proviso to section 13. It was further held, following an observation in Commissioner of Income-tax v. McMillan & Co. [1958] 33 I.T.R. 182; [1958] S.C.R. 689., that 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. In my opinion it cannot possibly be said that in the present case there was no material for invoking the proviso to section 13. The reason given by the Income-tax Officer, and even more so the elaborate analysis made by the Appellate Assistant Commissioner, clearly show that the yield of gi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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