Books of account rejected where missing stock tallies and deficient sales records prevented proper deduction of profits.

Whether income, profits and gains could be properly deduced from the regular method of accounting was treated as a question of fact for the taxing authorities. Where the accounts lacked stock tallies and sales entries did not identify the quality of goods sold, those defects were relevant material supporting rejection of the books under the proviso to section 13 of the Indian Income-tax Act, 1922. The court would not interfere unless the finding was unsupported by material or rested on irrelevant material. On the facts, the Tribunal's conclusion was sustained and the assessee's challenge failed.

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Issues: Whether the proviso to section 13 of the Indian Income-tax Act, 1922, was rightly applied to the assessee's branches on the ground that the true profits could not be properly deduced from the books of account because there were no stock tallies and the sales were not recorded with identifiable details.

Analysis: The material finding of the Tribunal was that the accounts suffered from the absence of stock tallies and from sales entries lacking identifiable details as to the quality of goods sold. The question whether such defects prevented the true profits from being deduced from the regular method of accounting was one for the taxing authorities as a question of fact. The court could interfere only if there was no material to support that finding or if the material was irrelevant or incapable of reasonably sustaining the conclusion. On the facts, the absence of stock tallies and the deficient sales records constituted relevant material supporting the view that the profits could not properly be deduced, and the contention that the nature of the business made such records impossible did not displace the Tribunal's finding.

Conclusion: The proviso to section 13 was rightly applied, and the finding against the assessee was upheld.

Final Conclusion: The reference was answered in favour of the Revenue, and the challenge to the rejection of the books of account failed.

Ratio Decidendi: Whether income, profits and gains can be properly deduced from the method of accounting regularly employed is a question of fact for the taxing authorities, and their finding will not be disturbed if it is supported by relevant material.

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