Account Rejection and Turnover Estimation Must Rest on a Definite Basis; Assessment Failed Below taxable minimum

Accounts were rejected because purchases lacked bills, sales were not proportionate to purchases, identical sales figures appeared on several dates, and the records did not disclose the true state of business. The estimation of turnover, however, had to rest on a reasonable and definite basis, so the inspection report and contemporaneous statement showing the normal daily realisation were used for a more realistic annual estimate. The turnover was fixed at a level below the taxable minimum, and the assessment for the relevant year was cancelled in favour of the assessee.

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Issues: Whether the rejection of the assessee's accounts and the consequent estimation of turnover at Rs. 39,000 per year were justified, and whether the assessment could survive when the estimated turnover fell below the taxable minimum.

Analysis: The accounts were found defective because purchases were not supported by bills, sales were not proportionate to purchases, identical sales figures appeared on several dates, and the records produced did not contain sufficient detail to show the true state of business. While the accounts were therefore liable to rejection, the addition made by the assessing authority had to be based on a reasonable and definite determining factor. The inspection report and the statement recorded at the time of inspection showed a net realisation of Rs. 125-85, which was treated as the normal daily realisation and used to estimate annual turnover on a more realistic basis.

Conclusion: The turnover was fixed at Rs. 39,000 per year, which was below the taxable minimum, and the assessment for 1974-75 was cancelled in favour of the assessee.

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