TaxTMI 
TaxTMI 
1937 (11) TMI 1
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.... 1930, which showed the profit for the year as Rs. 2,64,086, (b) a return of the total income of the Company for assessment, which included the income, profits and gains as per profits and loss account for the accounting year as Rs. 1,89,086 and (c) a covering letter which explained the adjustment of the figure in the profit and loss account so as to arrive at the figure of income in the return, and which was in the following terms : " We herewith beg to enclose the Income-tax Form No. 4449 for the year 1931-32 duly filled in showing therein the profits as per statement shown below, which please receive and pass the receipt for the same. Rs. Profits as per Balance-sheet for the year ending 2,64,086 December 31, 1930 3,43,353 Add Difference for the undervaluation in Stock ---- at the end of 1930 (at market rate). 6,07,439 3,97,634 Less Difference for the undervaluation in Stock at the end of 1929. 2,09,805 10,719 Less Premium received by sale of Government -Bond of 1932 1,89,086 " The printed copy of the Balance-sheet for the year 1930 is enclosed herewith which please note.....
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....order dated November 22, 1932. The assessee then applied to the present appellant to review the above orders under Sec. 33 of the Act, or alternatively, to make a reference of questions of law to the High Court under Sec. 66(2) of the Act. The appellant declined to review the orders, and, on the ground that no legal point was involved he also declined to make a reference. Thereafter the High Court, on an application by the assessee under Sec. 66(3) of the Act, required the appellant to make a reference and he made the present reference with the question of law as formulated by the High Court, viz., " Whether in view of the provisions of Sec. 13 of the Incometax Act or otherwise the Income-tax Officer was right in computing for the purpose of Sec. 10 of the Act, income, profits and gains in accordance with the method of accounting regularly employed by the assessees whether or not that method in fact shows the true income, profits and gains. " The appellant suggested the substitution of another question, but his suggestion was not adopted by the High Court. The Court, however without referring the case ba....
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....It may well be that, though the profit brought out in the accounts is not the true figure for income-tax purposes the true figure can be accurately deduced therefrom. The simplest case would be where it appears on the face of the accounts that a stated deduction has been made for the purpose of a reserve. But there may well be more complicated cases in which nevertheless, it is possible to deduce the true profit from the accounts, and the judgment of the Income-tax Officer under the proviso must be properly exercised. It is misleading to describe the duty of the Income-tax Officer as a discretionary power. Despite some statements in the reference which will be referred to later, their Lordships agree with the High Court that the facts stated make clear that here the Income-tax Officer has never exercised his judgment under the proviso, and their Lordships are further of opinion that, if he had so exercised his judgment, the Income-tax Officer would not reasonably have come to any other opinion than that the profit shown in the profit and loss account could not be the true figure for income-tax purposes. It is necessary now to consider some of the statements to be found in the....
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....sees have been found to have been regularly adopting all along the method of accounting which they followed for the year 1930 and (2) the method of valuation of stocks by taking some price under both cost and market price adopted for the year 1930 has been regularly employed by them for years past. This makes clear that the method of accounting regularly employed by the respondents comes within the meaning of Sec. 13 and it, therefore, became the duty of the Income-tax Officer to consider whether, in his judgment, the income, profits and gains for the purpose of Sec. 10 could be properly deduced from the accounts. In their Lordships opinion, it is abundantly clear that he never applied his mind to this question, but held himself entitled to hold the respondents to the figures of profit brought out in these accounts. The Assistant Commissioner took the same view, although he recognised that these figures did not show real profits. The views expressed by these two officers make it impossible to accept three statements by the appellant in the letter of reference, viz., (a) in para 4 : " After examination of....