Unreliable accounts justify estimated income assessment where the tax officer acts on relevant material and exercises discretion judicially.

Where an assessee's accounts are unreliable or do not permit proper deduction of income, the proviso to section 13 of the Income-tax Act, 1922 remains available even in an assessment under section 23(3). If, after examining the return, books and evidence, the Income-tax Officer is not satisfied with the accounts, he may reject them and estimate sales and profits on the material before him. The assessment process is not a strict judicial trial, and the assessee must produce satisfactory support for the return. Review is limited to whether the discretion was exercised judicially and not capriciously.

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Issues: Whether, in an assessment under section 23(3), the proviso to section 13 of the Income-tax Act, 1922 could be invoked where the assessee's accounts were found unreliable, and whether the Income-tax Officer was justified in estimating sales and profits on the material before him.

Analysis: The proviso to section 13 was held to govern cases in which the accounts are not regularly or properly maintained, or from which income cannot properly be deduced. It was held that section 23(3) does not exclude that proviso. When the Income-tax Officer, after examining the return, accounts, and evidence produced, remains unconvinced about the reliability of the accounts, he may reject them and compute income on such basis and in such manner as he considers appropriate. The assessment proceeding is not a strict judicial trial, and the assessee bears the burden of producing satisfactory material to support the return. The High Court's control is limited to seeing whether the discretion was exercised judicially and not capriciously.

Conclusion: The Income-tax Officer was legally entitled to disregard the unreliable accounts and make an estimate under the proviso to section 13 read with section 23(3); the estimate of sales and profits was upheld.

Ratio Decidendi: Where an assessee's accounts are found unreliable or fictitious, the Income-tax Officer may invoke the proviso to section 13 while acting under section 23(3) and assess income on the basis of judicially exercised discretion supported by relevant material, subject only to limited appellate or supervisory review for caprice or perversity.

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