Estimated assessment from defective accounts permits rejection of books and prevents selective acceptance of isolated sales margins.

Where the accounts do not enable true profits to be properly deduced, the taxing authority may reject them and make a reasonable estimate under the proviso to section 13 on the basis of relevant material. Defects such as absence of a stock register, inability to verify stocks and sales, and an unexplained low gross profit rate can justify that opinion. The authority is not required to accept isolated proved margins on selected sales while the rest of the business is estimated, because assessment must rest on the total turnover and not a piecemeal reconstruction. The estimate of profits was therefore upheld against the assessee.

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Issues: Whether the Tribunal was justified in invoking the proviso to section 13 of the Income-tax Act, 1922, to compute the assessee's income on estimate despite the accounts and whether the assessee could insist on acceptance of part of the trading result for selected sales.

Analysis: The absence of a stock register, the inability to verify stocks and sales at the Bombay branch, the unexplained low gross profit rate, and the other defects in the accounts furnished sufficient material for the Income-tax Officer to form the opinion that profits could not properly be deduced from the books. Once that opinion was reasonably formed on relevant material, the proviso to section 13 was properly invoked. The mere fact that some sales may have shown a proved margin of profit did not compel acceptance of that part of the result while the rest of the business was being estimated, because the assessment had to be made on the total turnover and a piecemeal acceptance of selected sales would distort the overall estimate.

Conclusion: The invocation of the proviso to section 13 and the estimate of profits were upheld, and the issue was decided against the assessee and in favour of the Revenue.

Ratio Decidendi: Where the accounts do not enable true profits to be properly deduced, the taxing authority may reject them and make a reasonable estimate under the proviso to section 13 on the basis of material available, and it is not bound to accept isolated proved margins for selected transactions while estimating the remainder of the business.

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