Reassessment on existing material and deduction cap under circular were found unsustainable where proper books were maintained.

A reassessment based on the same material already on record was unsustainable where the governing circular applied only to cases in which proper books were not maintained, so the reopening for the first two years could not be justified. For the third year, where the assessee had maintained books of account, the circular supported a deduction above the stated cap, and restricting the allowance to Rs. 10,000 was not proper. The operative principle is that reassessment cannot rest on material already considered when the circular does not support it, and a deduction limit cannot be imposed contrary to the circular where proper accounts exist.

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Issues: Whether the reassessment was justified on the material already on record and whether the restriction of deduction to Rs. 10,000 was proper in the light of the Board's circular and the assessee's maintenance of accounts.

Issue: Whether the reassessment was justified on the material already on record and whether the restriction of deduction to Rs. 10,000 was proper in the light of the Board's circular and the assessee's maintenance of accounts.

Analysis: For the first two assessment years, the material showed that the assessee had not maintained proper records, and the circular relied upon was understood to apply to cases where proper books were not maintained. In those circumstances, the reassessment was found to be unjustified and the original reopening could not be sustained. For the third year, there was no dispute that books of account were maintained, and the circular was held to support a deduction exceeding Rs. 10,000; therefore, limiting the allowance to Rs. 10,000 was not justified.

Conclusion: The reassessment was rightly quashed for the first two years, and the restriction of deduction to Rs. 10,000 for the third year was held to be improper.

Final Conclusion: The assessee succeeded on the reassessment issue for the first two years and on the deduction issue for the third year, while the Department's challenge failed.

Ratio Decidendi: A reassessment based on the same material is unsustainable where the governing circular does not justify the restriction applied, and a deduction cap cannot be imposed contrary to the circular where proper books of account are maintained.

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