Accounts are made up only when profit or loss is ascertained and balances are struck, not by mere carry-forward.

Under section 2(11)(c), a newly set up business may choose as its previous year the period from commencement until accounts are made up within twelve months, but "accounts are made up" in the commercial sense only when profit or loss is ascertained and the accounts are balanced, ordinarily by a balance-sheet. Mere closing of ledger accounts and carrying forward balances is insufficient. On that basis, the assessee could not use Samvat year 2014 as the previous year, and the income-tax authorities were justified in treating 19 June 1958 to 31 March 1959 as the previous year for assessment year 1959-60.

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Issues: Whether, on the facts and in the circumstances of the case, the assessee was rightly assessed for the assessment year 1959-60 on its income for the financial year 1958-59.

Analysis: The relevant rule under section 2(11)(c) is that a newly set up business may, at the assessee's option, treat as the previous year the period from commencement up to the date on which its accounts have been made up, provided the accounts are made up within twelve months from the date of setting up. The expression "accounts are made up" was construed in its commercial sense to mean that profit or loss has been ascertained and the accounts have been balanced, ordinarily by drawing up a balance-sheet. Mere closing of ledger accounts and carrying forward of balances, without determining profit or loss for the period ending with Samvat year 2014, was not sufficient to constitute making up of accounts. Since the assessee had not made up its accounts at the end of Samvat year 2014, the statutory option was unavailable, and the income-tax authorities were justified in treating the period from 19 June 1958 to 31 March 1959 as the previous year for assessment year 1959-60.

Conclusion: The question was answered in the affirmative, in favour of the Revenue and against the assessee.

Ratio Decidendi: For the purpose of section 2(11)(c), accounts are "made up" only when the business accounts are balanced and profit or loss is ascertained; mere carry-forward of balances does not confer the option to adopt that period as the previous year.

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