Unreliable books of account may be rejected when unexplained entries and interest treatment show they do not reflect true income.

The assessing authority may test the reliability of an assessee's books even where the accounts are arithmetically correct, and may reject them if cash introductions, interest-free repayments, or renewals without interest are not satisfactorily explained. In a money-lending business, such unexplained entries can support the conclusion that the books do not reflect the true state of income. On the facts, the Income Tax Officer had ample material to treat the accounts as unreliable, and the finding that they were not a true and complete record was sustained.

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Issues: Whether there was material to support the finding that the assessee's accounts were not a true and complete record of his business transactions.

Analysis: The accounts were arithmetically correct but the assessing authority was entitled to test their reliability where cash was brought into the books and the explanation for its introduction was unsatisfactory. In a case of money-lending business, if loans shown as carrying interest were repaid without interest, or renewed without provision for interest, the authority could treat the accounts as unreliable. On the facts, the Income Tax Officer had ample material to conclude that the books did not disclose the true state of income.

Conclusion: The question was answered in the affirmative; there was material to sustain the finding that the accounts were not a true and complete record.

Ratio Decidendi: Where an assessee's books are found unreliable because their entries are not satisfactorily explained, the assessing authority may reject them and act on material showing that they do not reflect the true income.

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