J.S. Verma, C.J. - (1.)THIS is a reference made under Section 256(2) of the Income-tax Act, 1961 (for short "the Act" hereinafter), as a result of a direction of this court to decide the following question of law, namely:
" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of Section 145 can be resorted to only when the accounts of the assessee are rejected on the ground of defect in the method of maintaining the same ?"

(2.)THE assessee is a registered firm deriving income from milling gram, etc., and selling the milled products. THE relevant assessment year is 1966-67 for which the corresponding accounting period ended on Ram Navmi Samvat Year 2023 corresponding to some date in the month of April, 1966. During this period, the assessee crushed 10,970 quintals of gram in its mill out of which it recovered dal weighing 8,190 quintals, churi weighing 2,302 quintals and chilka weighing 743 quintals. THE aggregate of the total yield of the milled products amounted to 11,235 quintals and on this basis, the yield of dal came to 75.1% of the quantity of gram crushed. THEse are the figures according to the assessee's books of account.
The Income-tax Officer took the view that the yield of dal and the overall increase in the aggregate weight of milled products was low as shown in the assessee's books of account. Accordingly, he asked the assessee to explain the same. The assessee gave several reasons to indicate that the moisture content was reduced resulting in reduction in the overall weight of the dal as well as the aggregate weight of all the milled products. The Income-tax Officer rejected the explanation of the assessee taking the view that the normal yield of dal from the crushed gram should be about 80%. On this basis, the Income-tax Officer calculated the total yield and came to the conclusion that there was a difference of 586 quintals in the quantity of dal and this being undisclosed, an addition of Rs. 45,708 was made at Rs. 78 per quintal on this quantity of dal.

The assessee preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner partly accepted the assessee's contention and reduced the estimate of dal to 77.5% instead of 80% assessed by the Income-tax Officer. The ultimate result was worked out accordingly. On this basis, the addition was reduced by the Appellate Assistant Commissioner from the figure of Rs. 45,708 to Rs. 21,770.

The assessee preferred a further appeal to the Tribunal. It was contended by the assessee that the proviso to Sub-section (1) of Section 145 of the Act did not apply since the method of accounting adopted in the assessee's books of account had not been rejected nor had the books of account of the assessee been rejected by the Income-tax Officer. The Tribunal accepted this contention. It has held that neither the Income-tax Officer nor the Appellate Assistant Commissioner found any defect in the method of accounting adopted in the assessee's books of account and, therefore, there was no basis to reject the books by resorting to the proviso to Sub-section (1) of Section 145 of the Act.

The Revenue, being aggrieved by the decision of the Tribunal, applied to this court under Section 256(2) of the Act after the Tribunal had rejected its application for a reference under Section 256(1) of the Act. On a direction given by this court, the Tribunal has stated the case and referred the above question of law for the decision of this court.

(3.)THE contention of learned counsel for the Revenue is that the powers exercised by the Income-tax Officer are under Sub-section (2) of Section 145 and not under the proviso to Sub-section (1) thereof. He argued that the Tribunal overlooked this aspect and, therefore, the conclusion reached by it is not justified. In other words, no attempt is made on behalf of the Revenue to rely on the proviso to Sub-section (l)of Section 145 of the Act, the only argument being based on the applicability of Sub-section (2) of Section 145. In such a situation, no occasion arises for deciding the justification of the applicability of the proviso to Sub-section (1) of Section 145 and the only question is whether Sub-section (2) of Section 145 is attracted. We find that the Tribunal has not taken into account Sub-section (2) of Section 145 for deciding the appeal before it and the same has been decided only on the question of applicability of the proviso to Sub-section (1J of Section 145 on which the Revenue does not even rely.
In such a situation, the appropriate course is to require the Tribunal to decide the matter afresh on the basis of Sub-section (2) of Section 145 of the Act since it is common ground that the proviso to Sub-section (1)of Section 145 has no application to the present case. We direct accordingly.

Consequently, the reference is answered with the above direction as follows :

" The Tribunal was not justified in holding that the proviso to Sub-section (1) of Section 145 of the Income-tax Act, 1961, was resorted to in the present case and it should have decided the matter on the basis of Sub-section (2) of Section 145 of the Act. "