Appellate power to alter computation: appellate authorities may raise the percentage basis used by the assessing officer.

Whether appellate income-tax authorities may alter the profit basis fixed by an assessing officer: the proviso to Section 13 permits an assessing officer to adopt a computation method where books fail to disclose true income, but that adoption does not immunise the method from appellate scrutiny; Sections 31(3)(b) and 32(3) empower the Assistant Commissioner and Commissioner on appeal to enhance an assessment and pass orders after hearing. Applying these principles, appellate authorities have statutory power to examine and, if wrongful, modify or raise the percentage basis used by the Income-tax Officer, and the answer is affirmative.

---

---

Issues: Whether, under the circumstances of the case, the Assistant Commissioner of Income-tax and the Commissioner of Income-tax had authority under the law to change the basis of profit fixed by the Income-tax Officer (16% on sales) to a higher percentage.

Analysis: Section 13 (proviso) permits the Income-tax Officer to adopt a basis or method of computation where regular books do not disclose true income, but that adoption does not render the chosen basis immune from appellate scrutiny. Section 31(3)(b) empowers the Assistant Commissioner inter alia to enhance an assessment, and Section 32(3) authorises the Commissioner, after hearing, to pass such orders on appeal as he thinks fit. Precedent establishes that where an Income-tax Officer has adopted a method, appellate authorities may examine and, if the method is wrong, set aside or modify the computation; similarly an officer may disregard an assessee's accounting method and adopt another. Applying these provisions and principles, appellate authorities have statutory power to alter the basis or rate applied by the Income-tax Officer, including raising a percentage rate used in computing profits.

Conclusion: The Assistant Commissioner of Income-tax and the Commissioner of Income-tax have authority to change the basis of profit fixed by the Income-tax Officer to a higher percentage; answer in the affirmative.

Ratio Decidendi: The proviso to Section 13 does not preclude appellate authorities under Sections 31 and 32 from examining and altering the basis or method of computation adopted by the Income-tax Officer; appellate powers include enhancing an assessment by changing the percentage or method used to compute taxable income.

---