Unreliable accounting records permit assessment by estimate when incomplete or inconsistent books prevent tracing investments and income.

Whether assessing authorities may reject a firm's books and assess by estimate turns on their reliability; where records are materially incomplete, inconsistent or omit key transactions so that investments and interest cannot be traced or verified, estimation is the only practicable basis for assessment. The decision summarises defects-absence of capital account and consolidated investment lists, inconsistent entries, unrecorded promissory-note and bond dealings, unaccounted receipts and admissions of omissions-and concludes that such defects justify rejecting books as unreliable and making an assessment by estimate; petition dismissed in favour of revenue.

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Issues: Whether the Income-tax Department was entitled to reject the firm's books as unreliable and make an assessment by estimate rather than refer a case to the High Court under Section 66(3) of the Income-tax Act, 1922.

Analysis: The sole issue concerns the reliability and completeness of the assessee's books relating to money-lending operations and whether those defects provided a sufficient basis for the Department to estimate productive investments. The record shows numerous irregularities: absence of a capital account and consolidated list of investments, inconsistent entries between rokar and khata, interest not debited or accounted for, unrecorded promissory-note and bond transactions, unexplained receipts and realisations not evidenced, and admissions by the petitioner that material transactions were omitted from the books. These defects prevented tracing of entries, identification of actual investments, and verification of interest receipts, thereby depriving the assessing authorities of a proper basis for a precise assessment. Under these circumstances the Department applied estimation as the only practicable method to determine taxable productive investments.

Conclusion: The petition is rejected; the Income-tax Department was entitled to reject the books as unreliable and to make an assessment by estimate. Decision in favour of Revenue.

Ratio Decidendi: Where accounting records are materially incomplete, inconsistent, or unreliable such that the assessing authority cannot trace or verify investment and income entries, the authority is entitled to make an assessment by estimate rather than base assessment solely on the defective books.

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