Statutory notice before rejecting accounts is mandatory; arbitrary income-tax assessment without opportunity to explain is invalid.

Where an assessee has filed a return and produced accounts in compliance with notice, the Income-tax Officer must follow the statutory procedure before rejecting those accounts and recomputing income. The proviso to section 13 applied only where no regular method of accounting was employed or where the method prevented proper deduction of income; here, the officer merely doubted the genuineness of the accounts without reasons. Section 23(2) required notice to attend or produce evidence when the return appeared incorrect or incomplete, but no such notice was served and no defects were pointed out. An assessment made in that manner was illegal and could not be sustained as an arbitrary estimate.

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Issues: Whether, after the assessee had furnished a return and produced accounts in compliance with notice, the Income-tax Officer could make an arbitrary assessment without proceeding under the statutory notice provisions.

Analysis: The proviso to section 13 applied only where no regular method of accounting had been employed, or where the method employed prevented proper deduction of income, profits, and gains. Here, the officer did not base his action on the method of accounting but merely doubted the genuineness of the accounts without reasons. The applicable provision was section 23(2), which required a notice calling upon the assessee to attend or produce evidence when the return appeared incorrect or incomplete. No such notice was served, nor were defects in the accounts pointed out to enable explanation. The assessment was thus made purely arbitrarily, without giving the assessee an opportunity to support the return.

Conclusion: The assessment was illegal and the question of law was answered in the negative, in favour of the assessee.

Final Conclusion: The statutory procedure for questioning a return had to be followed before rejecting the assessee's accounts and making a fresh computation of income.

Ratio Decidendi: Where the statute requires notice and an opportunity to support the return, an income-tax assessment made without following that procedure is invalid and cannot be sustained as a mere arbitrary estimate.

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