D. BASU J. - The question of law referred to us under section 66 of the Income-tax Act, 1922, in this, is :
'Was the Tribunal justified in coming to conclusion that, upon the facts admitted or found before them, the Income-tax Officer was entitled to proceed under the proviso to section 13 as regards the assessment of the engineering department of the assessee for the relevant assessment year ?'
The facts from which this reference arises may be briefly stated as follows : The assessee, a private limited company, carried on the business of manufacturing, iron pipe, drain pipes, etc., from raw materials in the assessment year 1953-54. It was noticed by the Income-tax Officer that the profit of the assessee could not be properly determined from the method of accounting kept by the assessee in relation to the quantity of raw materials received for manufacture and the volume of finished products, because while the receipts of raw materials were shown by weight, the finished goods were account for not in weight, but in terms of running feet of prices of different sizes, so that any reconciliation between the production and the sales and closing stocks was not possible. Upon these, facts, the Income-tax Officer applied the proviso to section 13 of the Act, and having regard to certain circumstances, such as market conditions prevailing during the accounting period and the amount of profits derived in previous years, the Income-tax Officer came to his finding as to the profits. The Income-tax Officer estimated the gross profits at 10 or cent. of the sales resulting in the addition of Rs. 49,688 to the book Profits. this finding was upheld by the Appellate Assistant Commissioner on appeal. The Tribunal, on second appeals, having regard to certain circumstance, reduced the addition of Rs. 49,688 to Rs. 25,000.
The short question that has got to be answered upon the reference is whether the proviso to section 13 or, rather the second, part of that proviso, is attracted, to the facts of this case That proviso runs as follows :
'Income, profits and grains shall be competed, for the purposes of sections 10 and 12, in accordance with the method of accounting regularly employed by the assessee :
Provided that, if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deducted therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine.'
The case of the revenue if that the books of this assessee were maintained in such a manner that it was not possible to arrive at the correct figure of profits therefrom. If this be the position, the result will be that the Computation can be made by the Income-tax Officer upon such basis and in such manner as he may determine. Regarding computation, learned counsel, on behalf of the assessee, had nothing to submit.
What remain is in regard to the hypothesis upon which the Income-tax officer proceeded, namely, that the method of accounting employed was such that, by its very nature, nobody properly deduce the profits therefrom. If the stock received be shown in the accounting by one standard and the goods produced from those raw materials, be shown by another standard, as has been done in the instant case, it is quite clear that there cannot be any deduction of profits therefrom, and this proposition could not be controverted on behalf of the assessee. In the circumstances, the question referred to must be answered in the affirmative. The Commissioner shall be entitled to his costs.
RAY J. - I agree.
Question answered in the affirmative.