Accounting period basis controls excess profits tax relief; notional apportionment between manufacture and sale is impermissible.

Under the Excess Profits Tax Act, deficiency of profits can be set off only if it arises in the relevant accounting period as computed on the annual income-tax basis. Profits and losses are determined by the accounting period, not by a notional split between manufacturing and sale across different periods. Where no profit is computed in that accounting period, no separate profit can be attributed merely because manufacturing occurred earlier. On that basis, carry-forward set-off based on apportionment across periods was rejected.

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Issues: Whether deficiency of profits for earlier periods, during which manufacturing took place but no sales were effected, could be apportioned and set off against the profits of the later chargeable accounting period under the Excess Profits Tax Act, 1940.

Analysis: The scheme of the Act distinguishes between the accounting period and the chargeable accounting period. Profits and losses are to be computed on the basis of the accounting period in the same manner as income-tax profits are computed for the relevant year. Relief under the provision dealing with deficiency of profits is available only where a deficiency is shown in the accounting period itself. A notional apportionment of profits between manufacture and sale across different accounting periods is not permissible when one part of the composite activity falls in one period and the sale in another. If no profit is computed in the accounting period on the income-tax basis, no separate profit can be independently attributed under the Act merely because manufacturing operations occurred.

Conclusion: The assessee was not entitled to set off the claimed deficiencies of profits for the earlier periods against the profits of the later chargeable accounting period.

Final Conclusion: The taxable profits had to be computed strictly on the basis of the accounting period, and the claimed carry-forward set-off based on apportionment across different accounting periods was rejected.

Ratio Decidendi: Under the Excess Profits Tax Act, deficiency of profits can be set off only when it arises in the relevant accounting period as computed on an annual basis, and profits cannot be notionally apportioned between manufacture and sale across separate accounting periods for the purpose of section 7 relief.

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