D.BASU,J. - (1.) THE question of law referred to us under s. 66 of the IT Act, 1922, in this, is: "Was the Tribunal justified in coming to the conclusion that, upon the facts admitted or found before them, the ITO was entitled to proceed under the proviso to s. 13 as regards the assessment of the engineering department of the assessee for the relevant assessment year?"
(2.) 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 pipes, drain pipes, etc., from raw materials in the asst. yr. 1953-54. It was noticed by the ITO that the profits 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 accounted for not in weight, but in terms of running feet of pieces of different sizes, so that any reconciliation between the production and the sales and closing stocks was not possible. Upon these facts, the ITO applied the proviso to s. 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 ITO came to his finding as to the profits. The ITO estimated the gross profits at 10% of the sales resulting in the addition of Rs. 49,688 to the book profits. This finding was upheld by the AAC on appeal. The Tribunal, on second appeal, having regard to certain circumstances, 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 s. 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 gains shall be computed, for the purposes of ss. 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 ITO, the income, profits and gains cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the ITO may determine." The case of the Revenue is 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 ITO upon such basis and in such manner as he may determine. Regarding computation, learned counsel, on behalf of the assessee, had nothing to submit.
(3.) WHAT remains is in regard to the hypothesis upon which the ITO proceeded, namely, that the method of accounting employed was such that, by its very nature, nobody could properly deduce the profits therefrom. If the stocks received be shown in the account 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.;