Proviso to section 13 invoked where deficient accounting prevents determination of true income; estimation upheld.

Whether the proviso to section 13 should be invoked was decided by reference to the sufficiency of accounting records; the Tribunal found the single accounting method produced deficient and defective books such that true income could not be deduced. The officer's opinion under the proviso is material and sustainable if there was any material on which a reasonable officer could form that opinion and is not open to interference unless arbitrary or capricious. On the facts (combined wholesale/retail accounts, inadequate vouchers, variable sales rates, no verifiable stock register) invocation of the proviso was warranted against the assessee.

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Issues: Whether, on the facts and in the circumstances of the case, the proviso to section 13 of the Income-tax Act should be invoked.

Analysis: The Tribunal and income-tax authorities found that although a single method of accounting was regularly employed, the accounts and accompanying material were deficient and defective such that the true income, profits and gains could not be properly deduced therefrom. The Income-tax Officer's opinion under the proviso to section 13 is material; if there is any material on which a reasonable officer could have formed that opinion, the exercise of the power is not open to interference unless it is shown to be arbitrary or capricious. The High Court is advisory and must answer the reference on the footing of the facts found by the Tribunal; the Tribunal's majority view that the books were insufficient and that estimation under the proviso was warranted is supported by evidence including combined wholesale and retail accounts without segregated profitability, inadequate vouchers lacking quantities, sales at varying rates without explanation, and absence of a verifiable stock register.

Conclusion: The proviso to section 13 of the Income-tax Act should be invoked - conclusion is against the assessee and in favour of the Revenue.

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