Estimated assessment requires unreliable accounts and a rational basis; low profits and no stock register alone are insufficient.

Estimated assessment under the proviso to Section 13 of the Indian Income-tax Act, 1922 is permissible only where the accounts cannot properly yield true profits or the method of accounting is defective. Low disclosed profits and absence of a stock register, by themselves, are insufficient to reject the books or justify an arbitrary lump-sum addition. The revenue must show material that the accounts are unreliable and, if estimation is invoked, adopt a definite rational basis for the computation. A bare enhancement of profits unsupported by a reasoned method is inconsistent with the statutory scheme.

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Issues: Whether an addition could be made to the book version of business profits where no stock account was maintained, solely because the net profits disclosed appeared insufficient in relation to the total turnover.

Analysis: The proviso to Section 13 permitted computation on another basis only where no regular method of accounting was employed, or where the method employed was such that the income, profits and gains could not properly be deduced therefrom. The existence of low profits and absence of a stock register were not, by themselves, enough to justify rejection of the books or an arbitrary lump-sum addition. The income-tax authority had to have material showing that the accounts were unreliable or that the method of accounting was defective, and if that proviso was invoked, a definite basis for estimation had also to be adopted. A bare increase of profits, unsupported by a rational method, was contrary to the statutory scheme.

Conclusion: The question was answered in the negative. An addition could not be made merely on the ground that profits appeared low and no stock account was maintained.

Ratio Decidendi: Under the proviso to Section 13 of the Indian Income-tax Act, 1922, estimated assessment is permissible only when the accounts are shown to be incapable of yielding true profits and the estimation is made on a rational basis, not by an arbitrary lump-sum addition.

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