Stock records plus other accounting defects can justify rejection of books when true profits cannot be properly deduced.

Absence of a quantitative tally or stock record, when coupled with other defects in the accounts, can support an implied finding that true profits cannot be properly deduced from the books, so the proviso to section 13 of the Indian Income-tax Act, 1922 is attracted. The surrounding defects relied on included unverifiable disclosed profits, a false description of the business as wholesale, and unexplained balance-sheet excess. The mere fact of low profits or the absence of a stock register by itself is not enough, but those authorities do not assist where additional material shows the accounts are unreliable for assessment purposes.

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Issues: Whether, on the facts and circumstances, there was material to support a finding that the method of accounting employed by the assessee was such that the income, profits and gains could not properly be deduced therefrom.

Analysis: The assessment authorities proceeded on several surrounding circumstances, including the absence of a quantitative tally of purchases and sales, the unverifiable nature of the disclosed profits, the false claim that the business was wholesale, and the unexplained excess shown in the balance-sheet. Though the orders did not use the precise statutory language in express terms, they reflected an implied finding that the accounts were unreliable for deducing true profits. The absence of a stock or quantitative record, taken with the other defects, was sufficient material to attract the proviso to section 13. The rule in prior authorities that low profits or mere absence of a stock register by itself is not enough did not assist the assessee on these facts.

Conclusion: The issue was answered in the affirmative and the proviso to section 13 was properly applied; the finding stood in favour of the Revenue.

Ratio Decidendi: Where the absence of a quantitative tally or stock record is accompanied by other material defects showing that true profits cannot be deduced from the accounts, the proviso to section 13 of the Indian Income-tax Act, 1922 is attracted.

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