Book results may be rejected when profits cannot properly be deduced from accounts and no further notice is needed after hearing.

The proviso to section 13 of the Income-tax Act, 1922 permits rejection of regularly kept accounts where the Income-tax Officer, on relevant material, forms a bona fide and non-arbitrary view that profits cannot properly be deduced from the books. Here, the gold transactions were unsupported by sufficient purchase details, verification of sellers was not possible, and the disclosed profits appeared improbable, so rejection of the book results for gold was justified. Separate treatment of silver transactions required no further notice because the assessee had already been heard on both commodities under earlier notices, and no prejudice was shown. The assessment procedure was therefore valid.

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Issues: (i) Whether the proviso to section 13 of the Income-tax Act, 1922 applied so as to permit rejection of the assessee's books of account for gold transactions and assessment on a flat-rate basis. (ii) Whether the income-tax authorities could, without any further notice, accept the book profits for silver transactions while rejecting the book profits for gold transactions.

Issue (i): Whether the proviso to section 13 of the Income-tax Act, 1922 applied so as to permit rejection of the assessee's books of account for gold transactions and assessment on a flat-rate basis.

Analysis: The proviso vested discretion in the Income-tax Officer, but that discretion had to be exercised judicially and not arbitrarily. The assessee's gold profits were extremely low, the books contained no details of the ornaments purchased or of the sellers, verification of purchases was therefore not possible, and the gold market conditions made the disclosed profits appear improbable. The material on record was reasonably capable of supporting the officer's view that the income from gold transactions could not properly be deduced from the books.

Conclusion: The proviso to section 13 came into operation and the rejection of the book results for gold transactions was justified.

Issue (ii): Whether the income-tax authorities could, without any further notice, accept the book profits for silver transactions while rejecting the book profits for gold transactions.

Analysis: Notices under sections 22(4) and 23(2) had already been issued, and the assessee's representative was specifically questioned about the profits from both gold and silver transactions. No additional notice was required merely because the authorities accepted the books for one commodity and rejected them for another, and no prejudice was shown.

Conclusion: No further notice was necessary before adopting different treatment for silver and gold transactions.

Final Conclusion: The reference was answered against the assessee, holding that the proviso to section 13 was rightly invoked and that the assessment procedure adopted by the revenue authorities was valid.

Ratio Decidendi: Where the Income-tax Officer, on relevant material, forms a bona fide and non-arbitrary judgment that profits cannot properly be deduced from regularly kept accounts, the proviso to section 13 may be applied, and no additional notice is required if the assessee has already been heard on the relevant transactions.

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