Mercantile accounting and flat-rate profit estimates are sustained where factual findings are supported by evidence

Business income under the Indian Income Tax Act, 1922 is computed by the assessee's regularly employed accounting method, but the assessing authority may adopt a different basis where the books do not properly disclose income. On the facts discussed, the finding that the assessee kept mercantile accounts and had omitted the disputed receipt from the relevant year was supported by evidence and was not open to interference. The estimate of profits on a flat-rate basis was also a matter for the assessing authority on the facts, and the rate of 32.5 per cent was not shown to be arbitrary or unwarranted.

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Issues: (i) whether the finding that the assessee's accounts were kept on a mercantile system, and that the sum of Rs. 90,618 had to be included in the relevant accounting year, was a finding of fact unsupported by evidence and therefore open to judicial review; (ii) whether the estimate of business profits at a flat rate of 32.5 per cent could be interfered with as a matter of law.

Issue (i): whether the finding that the assessee's accounts were kept on a mercantile system, and that the sum of Rs. 90,618 had to be included in the relevant accounting year, was a finding of fact unsupported by evidence and therefore open to judicial review.

Analysis: Under the Indian Income Tax Act, 1922, income from business is computed in accordance with the method of accounting regularly employed by the assessee, and where that method does not properly disclose income the Income Tax Officer may determine the basis of computation. The finding in question turned on how the assessee's books were kept and whether the disputed sales were omitted from the proper year. The record disclosed material inconsistent with the assessee's version, including the treatment of sales entries, the timing of hundis and payments, and circumstances showing that the disputed amount had been excluded from the 1926-27 accounts out of the ordinary course.

Conclusion: The finding was one of fact supported by evidence and was not open to interference.

Issue (ii): whether the estimate of business profits at a flat rate of 32.5 per cent could be interfered with as a matter of law.

Analysis: The rate of profit, once the adoption of a flat-rate basis was justified, was for the Income Tax Officer to determine on the facts of the case. The assessee had not successfully shown that the rate adopted was unwarranted, especially where a similar rate had been accepted in preceding years and further inquiry had produced no reason for interference.

Conclusion: The flat-rate estimate of 32.5 per cent stood and could not be disturbed.

Final Conclusion: The appeal failed on the merits because the disputed assessment findings were factual determinations supported by evidence, and the assessment of profit at the chosen flat rate was within the officer's lawful discretion.

Ratio Decidendi: Where an income-tax assessment turns on factual findings as to the assessee's accounting method and the proper year of inclusion of receipts, and those findings are supported by evidence, they are not open to judicial review; similarly, the estimate of profit on a flat-rate basis is for the assessing authority to ermine on the facts unless shown to be arbitrary or unsupported.

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