Rejection of regularly audited accounts justified where yield figures, comparative material, and missing production records made returns unreliable.

Regularly audited accounts may still be rejected where material shows that the income, profits and gains cannot properly be deduced from the accounting method employed. In a cotton-processing business, the absence of a day-to-day production and consumption register, together with questionable yield figures and comparative material, provided sufficient basis to doubt the correctness of the returns. Low profits alone were not enough, but the defective records and implausible disclosed yield justified resort to the proviso to section 13 of the Income-tax Act, 1922. The proviso was therefore rightly invoked, and the issue was answered against the assessee and in favour of the Revenue.

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Issues: Whether there was material to justify the invocation of the proviso to section 13 of the Income-tax Act, 1922 for the relevant assessment years.

Analysis: The assessee maintained regularly audited accounts, but the authorities found that the disclosed yield of ginned cotton from raw cotton was not credible. The absence of a day-to-day production and consumption register was treated as a significant defect because, in a processing business of this nature, such a register was necessary to test the correctness of the returns. The rule that regularly kept accounts are ordinarily to be accepted does not prevent the Income-tax Officer from rejecting them where material exists showing that the income, profits and gains cannot properly be deduced from the method employed. Low profits by themselves are not enough, but here the yield figures, the comparative material, and the absence of vital records provided sufficient basis for action under the proviso.

Conclusion: The proviso to section 13 was rightly invoked, and the question was answered against the assessee and in favour of the Revenue.

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