TMI Blog1971 (3) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee is a dealer in rice on wholesale and on commission basis. In the previous year ending on August 16, 1962, relating to the assessment year 1963-64, his books of account showed a turnover of Rs. 11,56,138. The gross profit was Rs. 4,365, and thus works out to a rate of 0.4%. In the opinion of the Income-tax Officer, this was a very low rate when compared to the profits disclosed by other similar dealers. The assessee has maintained regular books of account, and also a stock book on the basis of number of bags. The Income-tax Officer held that the stock book should have been maintained in terms of weight for a proper verification of the stock. He also found that the addresses of parties given in the duplicate copies of the sale bills were not sufficient for a cross verification. The assessee explained the low rate of profits as being due to the fact that he had to sell the rice on certain occasions at a loss due to fall in the market ; and he attempted to substantiate it by sale bills. But the Income-tax Officer did not accept that explanation, since the sale bills could not be related to any particular purchases. The assessee expressed his inability to tally the stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould have been determined on the basis of the books of account, so long as there was no finding of any suppression of turnover. On the other hand, counsel for the revenue contended that the grounds stated by them are adequate to reject the book results and make a best judgment assessment of the income. The arguments were mainly centered on the true interpretation of section 145 of the Income-tax Act, 1961, and its application to the facts of the case. This section corresponds to section 13 of the Indian Income-tax Act, 1922. Section 145 of the 1961 Act reads : " 145. Method of accounting.-(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. (2) Where the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting, the accounts are correct and complete, and the method employed is such that the income can be deduced therefrom; and the income should, therefore, be computed accordingly. Admittedly, the assessee has employed a regular method of accounting and the income can be deduced therefrom. But, according to the revenue, the accounts are neither correct nor complete; and sub-section (2) of section 145 applies. Therefore, the question for consideration is whether there are any materials for holding that the accounts are not correct or complete. The Income-tax Officer stated three grounds for rejecting the assessee's books of account ; and they have been affirmed by the Appellate Assistant Commissioner and the Appellate Tribunal. Those grounds are : (i) a low rate of profit when compared to other similar dealers ; (ii) non-maintenance of a stock book on the basis of weight, without which the stock cannot be verified in terms of weight ; (iii) absence of particulars of the addresses of the customers, without which verification of the sales is not possible. According to the assessee, these are not valid grounds for rejecting the accounts, and the book results should be accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee may be incompetent or his methods of business may be uneconomic. Again, the fact that there is no stock register only cautions him against the falsity of the returns made by the assessee. He cannot say that merely because there is no stock register the account books must be false. " Another decision relied on by counsel for the assessee is that of the Bombay High Court in R.B. Jessaram Fatehchand v. Commissioner of Income-tax . In that case, the books of account of the assessee were rejected by the Income-tax Officer on the ground that the assessee was unable to supply the addresses of the customers and the gross profit was low when compared to other traders. The court held that these were not sufficient grounds for rejecting the accounts. In doing so, it stated : " The Income-tax Officer had scrutinised closely the account books of the assessee and had found no fault with them excepting that the addresses of the customers for the cash sales of sugar had not been entered. It was not found by him that there were any other reasons for not accepting the said cash sales, such as, for instance, the sales being at lower rates than what were prevailing in the market or that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or arbitrary decision but a judicial decision and cannot be accepted if there is no material to support his finding. " As against the above authorities, counsel for the revenue first cited the decision of the Supreme Court in S. N. Namasivayam Chettiar v. Com- missioner of Income-tax. Counsel relies on the following passage in the above decision : " In cases such as the instant case, the keeping of a stock register is of great importance because that is a means of verifying the assessee's accounts by having a ' quantitative tally ' . If after taking into account all the materials including the want of a stock register, it is found that from the method of accounting the correct profits of the business are not deducible, the operation of the proviso to section 13 of the Income-tax Act would be attracted. " Reference has been made in the above case to the decision of the Punjab High Court in Pandit Bros v. Commissioner of Income-tax and after quoting from the said decision a part of the passage which has been herein quoted already, the Supreme Court said : " The want of a stock register was, in that particular case, not a very serious defect because the account books had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrah Trading Co. v. Commissioner of Income-tax. The assessee in that case was a manufacturer of iron pipes, drain pipes, etc. He maintained a stock register of the raw materials purchased by weight, and of the articles manufactured in length. The Income-tax Officer held that the profits of the assessee could not be properly determined from the method of accounting adopted by the assessee, as the finished goods were not accounted in weight. The High co urt upheld the rejection of the accounts, stating : " If the stocks received be shown in the accounts by one standard and the goods produced from those raw materials be shown by another standard, as has been done in the instant case, it is quite clear that there cannot be any deduction of profits therefrom, and this proposition could not be controverted on behalf of the assessee." The judgment is very brief ; and this is the only reason given for upholding the rejection of the accounts. With great respect, it has to be stated that there is an over-simplification of the real question that arises for consideration. What is relevant to consider in such cases is whether the assessee's accounts are maintained according to the method re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enance of a stock register in terms of weight is a very laborious process. As observed in the Bombay High Court in R. B. Jessaram Fatehchand v. Commissioner of Income-tax, there is no need to have complete particulars of the names and addresses of customers in the case of cash transactions, and the absence of such particulars in the sale bills would not be a ground for not accepting the books of account of an assessee. As already stated, the assessee has admittedly maintained his accounts according to the method regularly employed by him, and the profits and gains of the business can be properly computed from his accounts. The only question is whether the accounts are correct and complete. There is no finding that the purchases have been exaggerated or the sales have been suppressed, or that any transaction has not come into the accounts. In these circumstances, the grounds stated by the Appellate Tribunal are neither valid nor relevant in rejecting the accounts of the assessee. Question No. 1 in the reference is, therefore, answered in the negative and in favour of the assessee. In the circumstances of the case, there will be no order as to costs. A copy of this judgment will be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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