Accounting Method Adjustment: proviso to Section 13 permits tax officer to estimate yearly profits where accounts do not disclose true profit.

Whether the proviso to Section 13 applies where contract accounts are kept on a completed-contract basis and do not disclose true profits: the proviso permits the tax officer to determine the basis and manner of computation when no regular accounting method is employed or the employed method prevents proper deduction of income; each previous year is a separate assessment unit requiring ascertainment of profits for that year; recognised commercial methods (valuing work in progress and estimating profit on completed portions) enable yearly profit ascertainment; consequence: the proviso applies and the officer may compute profits by estimate.

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Issues: Whether the proviso to Section 13 of the Income-tax Act is applicable to contract accounts kept on a completed-contract basis so that the Income-tax Officer may compute profits by estimate for the accounting year when the assessee's method of accounting does not properly disclose profits.

Analysis: Section 13 requires computation in accordance with the method of accounting regularly employed, but its proviso permits the Income-tax Officer to determine the basis and manner of computation where no regular method is employed or where the employed method does not permit proper deduction of income, profits and gains. Section 3 makes each previous year a distinct unit of assessment, requiring ascertainment of profits accruing in that year. The facts show that the assessee either had no regular method of accounting until the relevant year or maintained accounts that did not reflect true profits for the accounting year (defective accounts, lack of separate contract profit computation, and work-in-progress not properly shown). Recognised commercial accounting methods (including valuation of work in progress and estimating profit on the portion completed) enable yearly ascertainment of profit on incomplete contracts and are suitable for assessment purposes. Authorities cited establish that inconvenience or lack of mathematical exactness does not preclude reasonable estimation of profit for the accounting year and that where the accounts do not permit proper deduction of income, the proviso to Section 13 applies.

Conclusion: The proviso to Section 13 is applicable; the Income-tax Officer is entitled to disregard the assessee's accounting method and compute the profits for the accounting year by such basis and in such manner as he may determine, and the question is answered against the assessee and in favour of the Revenue.

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